rssIf We Can’t Stop Foreclosures, Maybe It’s Time to Rent
Tuesday, February 03, 2009 at 9:32 am
- 16 Comments
Just as the Obama administration prepares its plan to salvage the financial system and help homeowners facing foreclosure, the debate over whether loan modifications actually work is heating up again.
This is a policy argument in which only one thing is certain: no one involved has any idea what they are talking about. None.
A recent study by the Office of the Comptroller of the Currency says that more than half of homeowners default again within six months of having a loan modified. Housing advocates counter that loan modifications fail if they’re not structured properly, because some lenders merely offer repayment plans that only add to a homeowner’s cost.
The Washington Post wades into the debate today, but it’s been going on for months — ever since pushing loan modifications became the focus of foreclosure prevention efforts. It’s hard to say for sure who is right, mostly because loan modifications are so new there’s simply no good historical data to tell us one way or the other.
It’s not just that we don’t know whether loan mods will work or not, we’re also moving toward doing more and more of them. One financial analyst suggested to me in an interview for a TWI story last fall that the first step in any loan modification effort should be collecting detailed information on what kind of loan modifications are getting done, what exactly they involve, and how they are performing. Short of that effort, it’s going to be hard to tell whether loan modifications are the way to go.
What if lenders modify hundreds of thousands of loans, and house prices fall again, by 10 or 20 percent? That’s not an unlikely proposition. What then? Do lenders redo all those loans? Will homeowners who once again find themselves underwater on their mortgages walk away?
What has struck me in the loan modification debate has been the absence of interest or investigation into the alternative – renting. Some people aren’t going to be able to afford their homes, no matter how many loan modifications they get. Some homeowners simply won’t qualify for loan modifications in the first place. They should be renting. They would probably welcome a chance to get out from under the burden of their homes, and their ruined credit.
If lenders are going to have to take a loss on some loans, what about a “get out of jail free card” for homeowners who can’t be helped by loan modifications? Lenders want those homes out of limbo and in the hands of another buyer anyway, and prolonging the inevitable doesn’t help. Homeowners who are going to end up renting anyway could get some sort of break on their credit history, their delinquent mortgage payments wiped clean, so they could go out and find a decent rental property.
Or they could rent from the lender, if some are willing to temporarily get into the property management business, until a new buyer is found. Keep the house and the lawn up, don’t trash the property, and the lender gives you a clean slate to find a place to rent.
It’s not an ideal solution. But at the moment, there don’t seem to be any other magic bullets out there. So we cling to the idea of loan modifications, even though we have no idea whether they’ll make a difference. In the meantime, we don’t even consider alternatives.
One of the lessons of this crisis has been that the benefits of homeownership have been overblown, and that owning a home isn’t for everyone. So why, as the debate over loan modifications goes on, and the government searches for ways to stop foreclosures, are we desperately trying to keep people in homes they can’t afford, regardless of whether or not they get a break on their loans?
16 Comments
Comment posted February 3, 2009 @ 10:54 am
Valid and valid – I agree with a lot of the above. We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first. But, my reasoning matches yours. How MUCH is this really helping? And to what end? It's a knee-jerk reaction to do something, anything, and as long as it works for the next 15 minutes, by all means, let's stave off the invevitable for that much longer (???).
Good post -
Pingback posted February 3, 2009 @ 11:33 am
[...] Random Feed wrote an interesting post today onHere’s a quick excerptJust as the Obama administration prepares its plan to salvage the financial system and help homeowners facing foreclosure, the debate over whether loan modifications actually work is heating up again. This is a policy argument in which only one thing is certain: no one involved has any idea what they are talking about. None. A recent study by the Office of the Comptroller of the Currency says that more than half of homeowners default again within six months of having a loan modified. Housing [...]
Pingback posted February 3, 2009 @ 3:15 pm
[...] The Washington Post wades into the debate today, but it’s been going on for months — ever since pushing loan modifications became the focus of foreclosure prevention efforts. It’s hard to say for sure who is right, mostly because loan …Original post by Mary Kane [...]
Comment posted February 5, 2009 @ 5:24 am
f people can't afford to live in there homes they should down size or rent. Why take taxpayer money to help people live in homes they can't afford. There were stories of borrowers with $14,000 in annual income buying $750,000 homes. Do we really want to help keep these people in these homes with taxpayer subsidies?
Pingback posted February 5, 2009 @ 10:32 am
[...] See original here: The Washington Independent » If We Can’t St… [...]
Comment posted February 10, 2009 @ 5:10 pm
loan modification is a broad topic and not everyone is familiar with it.. Renting is a great idea but who would want to rent all his life?
Comment posted February 17, 2009 @ 10:04 am
I guess obama's honeymoon time is over. Lets see what he does.
Comment posted February 23, 2009 @ 7:41 am
so many people consider renting “throwing away money” but if you think about it, you “rent” a lot of stuff but don't consider it renting:
- you “rent” your cable bill, and even HBO and your favorite shows
- you “rent” your roadways, you wouldn't want to own your local road, but instead pay taxes and rent
when you rent, you have a lot more freedom of your finances. you have the use of the property or home, but no long term costs. you can more easily move, don't have to deal with fluctuations in price, mortgage payments, mortgage insurance, etc. and in times like these, it's a great way to not lose your shirt
Comment posted March 22, 2009 @ 5:40 pm
We just lost our house to foreclosure, due to an adjustable rate mortgage. Is there anyone out there that can give us information about buying a new one. We were told to call a mortgage broker, and they could get us financing, but I can't find anyone.
Comment posted March 23, 2009 @ 12:40 am
We just lost our house to foreclosure, due to an adjustable rate mortgage. Is there anyone out there that can give us information about buying a new one. We were told to call a mortgage broker, and they could get us financing, but I can't find anyone.
Comment posted September 24, 2009 @ 9:23 am
Renting is a good choice if you're on a trip to a foreign country or to a greater distance and you hate driving all the way there. I believe (although prices are fluctuating) that you shouldn't need that much money to rent a car or masini de inchiriat but it really depends on what you want to drive. You can't rent a mercedes for 20 $ a day that's for sure but i don't get people who are renting a car for 6 months when they can buy it :))
Comment posted November 16, 2009 @ 5:22 am
I agree with a lot of the above. We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first.
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Comment posted February 23, 2010 @ 4:16 am
We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first. program gestiune
Comment posted February 23, 2010 @ 4:18 am
We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first.
Comment posted February 23, 2010 @ 9:18 am
We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first.
Pingback posted October 2, 2010 @ 8:55 pm
[...] 2.If We Can’t Stop Foreclosures, Maybe It’s Time to Rent « The We are actually buying short sales in several different cities, but a lot of borrowers are considering trying to do loan mods first. Forum rent a car Bucharest… http://washingtonindependent.com/28637/if-we-cant-stop-foreclosures-maybe-its-time-to-rent [...]
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