New Effort To Stop Foreclosures, Ho Hum

by Peter G. Miller
October 11th, 2007

A new effort supported by the Treasury Department and HUD to help borrowers has been introduced.

What it actually does is unclear.

According to Treasury Secretary Henry Paulson this project involves “11 of the largest mortgage servicers representing 60 percent of the mortgages in America, several of the leading mortgage counselors, investors, and large trade organizations have come together and formed a partnership to help more Americans keep their homes. These leaders recognize that by working together, coordinating and scaling up their activities, they will be able to work toward the goal to help more homeowners.

“Their partnership, called HOPE NOW, has put together an aggressive plan to reach more homeowners and help them find a way to stay in their homes. And I’m glad to see the American Securitization Forum, representing investors as well as servicers, is joining this alliance, recognizing that mortgage investors also have an interest in expanding the reach of mortgage counselors to prevent foreclosures whenever possible.”

This is great, but what is it — exactly — that this new effort will produce that differs from past efforts?

What will be done to stop exploding ARMs? What will be done to make loan modifications easier? Can we require a better way for borrowers to communicate with lenders and loan owners? Will the Administration support an end to bankruptcy rules which virtually require foreclosure rather than flexibility?

“This coalition has a lot of work to do,” says Paulson. “I applaud you for running toward this challenge. I’m pleased that in my discussions with members of Congress on this initiative I’ve heard bipartisan support for this effort. I also hope to see this alliance grow. Although, the servicers here represent 60 percent of mortgages outstanding, we need greater participation if we are going to get to all those that need help as quickly as possible. Others have good reason to join this alliance, because minimizing foreclosures benefits lenders and investors as well as homeowners.

“Thank you all for what you are doing, and keep up the effort. I know you are working to develop standardized metrics to track your progress and effectiveness in reaching and helping borrowers. I am also convinced that only by working together do we have any chance of being as successful as we need to be. A unified strategy and better integration will mean homeowners get better help with their mortgages, servicers get better responses when they reach out to people, and our communities will see fewer foreclosures.”

Metrics are nice, it’s good to count, thanks are no doubt in order but how can we help troubled homeowners? A few steps taken in two or three years will be far too late for millions of borrowers. As Moody’s reported in September, “despite much industry dialogue and heavy press attention on the topic of loan modifications as a mitigation technique to avoid foreclosure and reduce losses on defaulted loans, the survey results suggest that on average subprime servicers have only recently begun to materially increase the number of modifications as it relates to interest rate resets. Specifically, the survey showed that most servicers had only modified approximately 1% of their serviced loans that experienced a reset in the months of January, April and July 2007.”

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This entry was posted on Thursday, October 11th, 2007 at 2:20 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

7 Responses to “New Effort To Stop Foreclosures, Ho Hum”

  1. Samuel D. Bornstein Says:

    Loan modifications will not work because even thought the monthly payment stays low, how can we have confidence in the subprime borrower who has a poor credit history, and is in this mess because of it. These borrowers need to learn how to better manage their spending. They need a stiff course in financial literacy which will help guide them to become more responsible consumers. Even though the reset may mean an increase of $400 per month… Hey that’s only $13 per day. Why not cut the daily expenditures by $13. That may save their homes at reset. Cut down on the lattes..and save your home.

  2. Peter G. Miller Says:

    Sam –

    Thanks for your note. You make a good point, which is that no government program is going to save all borrowers with toxic loans.

    However, there are many borrowers who still can be helped. We could, if we elect, modify the bankruptcy code so that home mortgages could be modified — at present that is not the case. We could make overcharging someone for mortgage financing a crime. We could require that all loans must be documented. We could require that all loan officers must have a fiduciary obligation to borrowers. We could end prepayment penalties for subprime loans. We could require that all loans must be suitable for borrowers. The list goes on.

    As well, not all borrowers should be saved. Investors should have known better and people who materially-lied on loan applications do not deserve a bail-out. Alternatively, lenders who underwrote such loans also should not be bailed out.

  3. Robert Costes Says:

    I agree with you Peter that not all borrowers or lenders should be bailed out. I was a loan officer for a major player in sub-prime and witnessed the irationality and greed on both sides. The lenders created programs that were in-no-way prudent and doomed to blow up from the beginning. The borrowers were like pigs at a trough using their home equity as a credit card to live way above their means. I always gave people an of a fixed program to mitigate their risk. But they would almost always take the lowest payment and the most cash and let the future be damned. To give you an idea of the mind set then – One borrower bragged about making $100,000 per year $40,000 from the post office and $60,000 from appreciation. In my view it is not up to the general taxpayer to bail out the lenders or the borrowers who have acted like spoiled children and gone out of control.

  4. Peter G. Miller Says:

    Robert –

    Thank you. I appreciate what you are saying.

    Multiplied many, many times what you describe is at the heart of our current mortgage meltdown. And you are absolutely correct: These loans were doomed from day one.

    The question raised by your posting is this: Where were the underwriters? Why did they not decline the “$100,000″ borrower and others who were grossly unqualified? This is the mystery to me. The checks and balances didn’t work.

  5. Kip Says:

    Greed, defined as “I want ‘more’ and I love feeling like I have ‘more’”. Greed is bantered about as if it describes people who buy more boats and vacations. I find that for me it means feeding my children, able to pay my mortgage in some way that does not kick my kids out of a minimally expensive home (they do not get less expensive that the house I bought here in the Northeast), and on an on all about giving the kids a food shelter and clothing. Can we do better? Sure, we learn new ways every week. But “greed”? I took an ARM for three years so I could stabilize the kids after divorce for as long as society would help me stabilize them. If it blows up in 2.5 years from now, so be it. At least the kids were not displaced for awhile longer. Greed? Maybe. Parenting? Yes, at its most “obligate” requirement. Does this amount to “stealing” credit based on need? Well, its not like robbing the corner store for bread. That would be patently illegal, though maybe just as common.

  6. A. sutton Says:

    Just heard that our lender has cut the pay of their workers..So conducting business when you have BK deadlines to resolve the debt is very challenging…how are the Bills…to work with the homeowner are going to hold off a sale…now..at time…we want to resolve our debt..

  7. Lloyd Miller Sr. Says:

    I am trying to keep my house and land from going into forecloser. When I signed the papers it was set up at 700.00 a month and after I made my first payment the bank told me the payments were 1000.00. I have let my other bills get so far behind trying to keep the payments up.
    Now I am trying to keep my lights from being shut off. I am also trying to take care of my handicapped ex wife. I was laid off for 6 weeks and I just cant do the payments anymore.
    The bank told me after a year my payments would go down but they havent. Right now I am working day by day. Now they are going to fore close on me. I dont want to lose my home or my land. They are telling me it goes in to forecloser Dec 4th. Is there any way you can let me know if you can help me.
    You can call me at 616-527-9699 between 10:00 and 1:00 pm. Thank you i really need help. If you cant help me can you Please tell me who can? As of right now I am still trying to catch up my other bills also. Please let me know ASAP if you can help or if you know any one else that can PLEASE. Thank-You
    Lloyd Miller

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