And they were smart voices.
Wandering around in the Rain, there have been scores of bloggers pointing out that the federal government trying to "fix" the foreclosure crisis. Now, Inman News is saying the same thing. (the link will only be good until it goes behind the curtain)
Most families facing foreclosure today were on weak financial ground, he says, and "will defy every effort" at workouts. "Even extraordinary rewrites will beget re-default, the poorly maintained house creating deeper loss in the ultimate foreclosure, the troubled inventory overhanging the marketplace and preventing recovery," Barnes writes.
And goes on to say...
In an effort to prevent foreclosures, consumer groups and Senate Democrats want to give bankruptcy judges the power to cram down mortgage loan modifications over the objections of lenders. (see recent blog post, and watch Inman News headlines Monday for details on how the cram down provisions in S 2136 have been rolled into a more sweeping foreclosure prevention bill, S 2636).
Supporters of cram downs say voluntary efforts by loan servicers to engage in workouts with borrowers haven't done much to slow the pace of foreclosures, and that any increase in mortgage rates won't be as drastic as the industry predicts.
Although Barnes didn't address cram downs in his latest column, I thought it was interesting that he raised foreclosures and mortgage market liquidity in the same breath, and concluded that it's the credit crunch, not foreclosures, that pose the biggest threat to a recovery.
They also point out...
Pavlov and Wachter's December 2006 paper, "Aggressive Lending and Real Estate Markets," looked at the use of ARM loans in 22 Los Angeles neighborhoods where prices fell more than 21 percent between 1990 and 1995. Perhaps not surprisingly, prices fell harder in neighborhoods where ARM loans were more prevalent. But the study's most surprising finding was that it wasn't the higher default rates on ARM loans that sent home prices plummeting, but their lack of availability during the downturn.
So, a lot of people that study these things are saying that the government, trying to provide relief is doing EXACTLY the wrong thing. Of course, it is populist to go after the banks and talk about corporate greed and not personal responsibility. (BTW, remember that those ideas are coming from both sides of the aisle). Instead of helping people and getting us past this, it will only delay and increase the severity.
The cry of all of the people that aren't being foreclosed are losing value is a valid one... but, is it not worse to drag the problem out and make it take a decade for price recovery than to let the market find its bottom and work through it in just two or three years? Would those responsible borrowers and homeowners not be better served by the restoration of their equity sooner, rather than later?
Feel free to post links back to other blogs with arguments on both sides of this issue. (Note: I did not post links to A/R blogs that echoed this sentiment. There are a lot. I have read a bunch of them. Feel free to post links to your blog. I didn't want to miss a good one... and there are many.)
Game on...
Unless otherwise noted, all content of this blog is the property of Lane Bailey, ©2012 Lane Bailey.
I'd love to hear from you...
Richard, Matt and Don - Thank you.
Where are the dissenters?
I actually believe that the government should assist with the foreclosure problem. The way I see it, some of these families got into this situation due to situations like lay-offs or illnesses that prevented a primary financial provider from earning his or her income. These same families may now have their feet firmly re-planted and are trying to regroup and get it back together. To say that the government (who is partly responsible for many lay-offs by providing tax breaks for companies that take their plants out of the country) should do absolutely nothing kind of flies in the face of "do the right thing."
Don't get me wrong. I know for a fact that many people in this situation are there due to their own lack of budgeting or because they got in over their head. My sister had her home foreclosed upon just last year and I stand by my statement that it was her own fault for taking on a mortgage that stretched her income farther than she shoud have. So I'm not naive about the other people in this situation.
I just think that the poeple who can be helped should be helped.
~Renae
Renae - I follow you, but here is the problem. The data is saying that if we "help", we will be dragging it out and possibly making the problem worse (decreasing value further). How does that help the responsible borrowers? How does that even help those in trouble. The trouble will only be worse if their homes are even more devalued.
Those same people wouldn't have been helped a year ago. Why is it different now? Finally, why should it be the government? I have no problem with a private organization looking for ways to help the few people that are in situations not of their own making... but even then, they are quite few, and the net the government will cast will be wide.
I don't generally steer people around, but you might want to read a post I did on my other blog... I think that there is stupidity flowing...
Ok, I read your other blog post. I thought what I was saying was what you were saying. That the people who want to do the right thing and the ones who are trying to get themselves and their lives back on track shoud receive the assistance they need.
Perhaps the government isn't the best choice to do that. After reading your other blog, I agree that the banks should be the ones to take the initiative (not private organizations). And you are correct that it would make the banks much more responsible by doing so. The problem with giving the banks responsibility with this task is that they will most likely not do what they can. Instead, they will do what they can to get as much money as they possibly can out of each of these poor souls before tossing them like trash in the gutter. (Yes, I have a bit of thing about banks - can you tell?) This is the reason why I initially said that the government should take responsibility. The government will be much more insistent that people do what they need to do in order to get back on track. (Or so we would hope. Yes, I've got a government issue as well - sorry.)
Regardless of who does it, I strongly believe that if there are people who want to do whatever they can to keep their homes, they should be given every opportunity to do so.
~Renae
Renae - Thank you for the follow up comment...
I agree that people that are acting responsibly, even if a bit late, should be given a fair chance to make things right. And, there is no doubt that in the other post I pointed out that the banks are acting stupidly (in my ever so humble opinion). Here is where we diverge. I want and expect the banks to act in their own best interest. I don't think that their best interest involves taking back properties for a loss. I think that they would be much smarter in the long term to NOT take a loss by foreclosing the home, and in the future receive a positive karma (from consumers and the media).
At the same time, I expect (but don't wish for) the government to do what is in its collective best interest. Governments, and the majority of those in the government (especially elected) want more power. They get that power by having people dependent on them. And, once they get that power... they don't let go of it. (When was the last time you heard of the government getting out of something?).
The bottom line is that I believe in enlightened self interest. I serve my clients to the best of my ability and do everything I possibly can because it is good for me. I give money to charities and organizations I believe in, because it is in my best interest (ethically if not financially).
I think that there are people in the banks (top level and on down) that don't think that they can vary from the rulebook... even if the rule book sends them to bankruptcy. But, I think that one executive out there will figure it out. He will see the opportunity to grab share and save money... profiting from generosity.
So, we agree on the basics that people should get a chance. We just disagree on who could best provide that chance... without damaging long term effects.
Lane - After careful consideration, I think I'm going to stick to my original thoughts - that the government should at least be responsible for holding banks accountable to making the effort instead of trying to get rich quick and taking the dumb way out (as stated so eloquently in your other blog). Perhaps putting laws in place that would require banks to do XYZ steps before resorting to foreclosure would be the way that this would work. I don't know.
But we do agree - people should get a chance to get it together.
~Renae