Foreclosures Are the Solution?
Matt’s Take on the News
July 21, 2011
Foreclosures Are the Solution?
Phillip van Doom from TheStreet.com reports on a concept that is a bit foreign. He makes a case that foreclosures aren’t the problem but the solution.
In reading thru the article, the point that he makes is that, short of MASSIVE principal reductions, the band aids that the government has been using invites the inevitable which is a prolonged housing crisis. Mr. van Doom surmises that the homeowners that can’t be permanently helped should be foreclosed on. He is basically saying, “Get it over with.”
I would suggest that the solution of simply foreclosing is a drastic one when their are other solutions available. Short sales are certainly one solution that saves the banks and their investors money (when compared to foreclosing on properties and selling properties at a discount) and also helps consumers that are in trouble.
So, I ask, why is the government putting up so many road blocks in the short sale arena? Why do they allow politicians who can’t spell short sale make policy? It’s like asking a plumber to do a lobotomy or asking a brain surgeon to re-plumb a house! Business people need to be making policy, not politicians!
Foreclosures Are the Solution, Not the Problem
By Philip van Doorn 07/11/11
NEW YORK (TheStreet) – Former Federal Deposit Insurance Corp. Chairman Sheila Bair made some excellent points in her Washington Post Op-ed piece Monday but overlooked one important point: The U.S. needs to double down on foreclosures.
To the former regulator, forgiveness is the answer. Bair said that the banks had showed a “stubborn refusal to deal head-on with past-due and underwater mortgages,” and that it was “time for banks and investors to write off uncollectible home equity loans and negotiate new terms with distressed mortgage borrowers that reflect today’s lower property values.”
True enough.
But why should the banks automatically write off any second-mortgage or home equity line of credit that goes delinquent? If word were to get out, any borrower who was actually in a position to comfortably make their first mortgage payment, plus a payment on a second mortgage, would seriously consider a “strategic default.” They wouldn’t lose their homes under Bair’s plan.
Bair does place some blame on consumers, saying that leading into the credit crunch, “it became old-fashioned to save up for the down payment on that first home,” and that “taking out a mortgage shifted from the most serious financial decision a family would make to a speculative bet on how far home prices would rise.”
No, ramping up writedowns isn’t the only answer. Want to save the banking system and restart the housing market. Why not also step up foreclosures?
Foreclosure has become a dirty word, but the regulatory onslaught has forced the largest banks to improve their loan servicing and foreclosure practices, and deals such as the recent $8.5 billion mortgage putback settlement by Bank of America (BAC_), actually spell-out myriad servicing, modification and foreclosure processing improvements.
So this is the time for banks to really push the foreclosure process, and maybe regulators and the rest of Washington crew consider process reforms to speed foreclosures through the courts.
Banks not only need to beef up their loan-modification efforts — as Bair suggests — but also greatly increase their mortgage foreclosure filings. Rather than taking a uniform approach, like Bair’s brilliant write-off of any “uncollectable” second mortgage, the banks need to analyze each delinquent loan and make the decision that best services the bottom line.
Either way, it enables them to move forward and clear out the volume, thus helping the overall housing as well.
