rssForeclosures and Delaying the Day of Reckoning
Thursday, January 15, 2009 at 6:47 am
- 3 Comments
Putting foreclosures on hold to allow time for lenders and servicers to work things out is a popular notion these days. Recently, both Fannie Mae and Freddie Mac extended their holiday foreclosure suspension to Jan. 31, giving the companies more time to hammer out the details of their streamlined loan modification program. As TWI pointed out a while back, states from California to Massachusetts also have used 90-day holds or other delays in foreclosures to try to keep people in their homes.
But as we also noted, the delays don’t always work, and sometimes just kick the problem down the road. And Housing Wire weighs in with more evidence that the stays aren’t effective. Just as a mandated 45-day delay in foreclosures ends in California, foreclosure activity is jumping right back up.
From Housing Wire:
Notices of Default, which represent the first step towards a foreclosure, rebounded sharply from an earlier stall caused by California State Senate Bill 1137, ForeclosureRadar reported. With 42,421 filings recorded in December, Notices of Default are back to the record levels reached in the second quarter of 2008, nearly doubling the 21,557 Notices of Default recorded in November alone. NOD filing levels in Dec. were 24.7 percent above year-ago totals, as well.
What does all this mean? Here’s Housing Wire again:
“The effort by the California State Legislature to reduce foreclosures has now clearly failed,” said Sean O’Toole, founder of ForeclosureRadar. “While State Senate Bill 1137 was well intentioned, forcing lenders to talk to homeowners won’t fix this problem. While a number of lenders have announced significant loan modification programs to reduce payments to affordable levels, these plans fail to address the fact that the average foreclosure in California now has $180,000 in negative equity. Lowering payments may provide a temporary fix, but lenders simply don’t have sufficient reserves to lower principal balances enough to help homeowners in foreclosure escape the prison of debt their home now represents.”
If this trend holds, it’s a grim one. Like we’ve said (and shown) before, nothing seems to stop the foreclosure machine.
3 Comments
Comment posted January 15, 2009 @ 8:01 am
It is a shame that we are skirting the real issue of our time. How do we get out of this economic quagmire? It seems that we are spending Billions in the hope that these monies will solve the problem. The real problem is the “lack of confidence” by the Borrower in his/her ability to make payments on loans and mortgages, and the “lack of confidence” by the Lender in believing that the Borrower will do so.
THERE IS A SOLUTION. The key is the Borrower’s ability to make the monthly mortgage payments on the Subprime and “Toxic” mortgages that will be Resetting in 2009 as part of the 2nd “Tsunami” Wave of Foreclosures.
If we can “naturally” guide the Borrower to avoid default, we will “turn it all around”. Everyone expects that the Borrower will default and be foreclosed. However, once the markets see that the mortgages are not defaulting, a few wonderful things will happen.
First, the media will report that the rate of foreclosure is dropping.
Second, the consumer will have more confidence in his/her ability to handle his/her finances.
Third, the valuation of the Mortgage Backed Securities will “rise from the ashes”, and all of the previously downvalued securities, whose underlying assets were these “Toxic” mortgages, will encourage investors to come back into the market.
In fact, the biggest winner will be the US Gov’t who has the greatest stake in the valuation of these “Toxic” mortgages.
In conclusion, the key is the Borrower… The Solution is a program of “Immediate and Specific Financial Guidance” for the Borrower to make this all happen.
The simple fact is that the underlying assets of the Mortgage Backed Securities and other related investments are the “Toxic” mortgages. Everyone is betting that the borrowers will default and foreclosures will follow. The key to increasing the valuations of these securities is the borrower's ability to avoid default. The borrower's track record is poor. Note that after loan modification, the re-default rate is 60% within 6 months! The borrower's failure is to be expected. After all, the borrower has no guidance and is like a “boat without a paddle”.
The solution is a program of “Immediate and Specific Financial Guidance” that will help the borrower “naturally” accomplish the monthly payment, without “bailout” or extensive loan mods which have proven to be a failure. This program is NOT the so-called Financial Literacy initiative that simply disseminates “information”, but rather it is a program that will help the borrower “understand” how to manage money and avoid the pitfalls that have previously caused financial distress.
Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ
Tel: (732) 493 – 4799
Email: bornsteinsong@aol.com
Comment posted January 17, 2009 @ 3:03 pm
No matter what you think about the foreclosure problem its all about JOBS! And, as long as we continue to hemorrhage jobs we will continue to sink into oblivion….
Comment posted January 17, 2009 @ 11:03 pm
No matter what you think about the foreclosure problem its all about JOBS! And, as long as we continue to hemorrhage jobs we will continue to sink into oblivion….
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