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With Moody’s, an economics research firm, predicting that foreclosures will reach 1.5 million in 2012, the Obama administration is taking another stab at stabilizing the housing market. Unfortunately though, their hands are pretty much tied and they’re going to have to depend on the common sense and good graces of banks and several federal agencies (ie, Fannie Mae and Freddie Mac) to work together.
Not to be a gloomy gus, but all this means is that another colossal failure is almost definitely on the way. But, following are the details of what the administration wants to happen.
Prevent Foreclosure: The Latest Efforts from the Obama Administration
As stated in the LA Times article, Obama administration ramps up mortgage refinancing effort, following are a couple of things the administration’s doing this go round to shore up the housing market.
Make It Easier to Refinance: In order to make it easier for many homeowners to refinance under the Home Affordable Refinance Program, the administration wants to raise the loan-to-home value ratio cap more. Right now, it’s at 125%, but many homeowners are much more underwater than that.
Many are underwater by 30, 40 and sometimes 50% or more, which makes them ineligible to refinance – even if they have are making timely payments (but are struggling).
Streamlining the Process: The one beef that many homeowners have when trying to refinance – whether it’s through HAMP, HARP or even with their lender directly – is that the process is so convoluted, ie: paper gets lost and has to be submitted multiple times; you can never speak/work with the same counselor throughout the process; you call one day and someone tells you one thing and you call the next day and a different person tells you another thing; etc.
Many homeowners simply give up or don’t know where to turn out of sheer frustration.
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How Millions of Homes Could Be Saved from Foreclosure: The Best Solution Offered Yet
We’ve long said it on this blog – the best things banks can do to prevent foreclosure – for millions! – is to reduce the principal balance. Now, a Harvard professor, who is an economic advisor to the president, is championing the same thing in The Los Angeles Times article, Obama administration ramps up mortgage refinancing effort:
A far more ambitious proposal is offered by Martin Feldstein, a Harvard professor and top economic advisor to President Reagan: Reduce the principal on the mortgages so that the loans are no more than 110% of the value of the properties. . . . Banks would absorb half the cost of the principal reduction, and the government the rest.
Stopping Foreclosures: Why the American Public (Many of Them Homeowners) are Their Own Worst Enemies
The main reason so many in power are resistant to giving principal reductions is that the American public is screaming:
Why does my neighbor Joe get a reduction in his principal balance when he can’t afford his mortgage and I did everything right and I’m not getting one? You’re punishing hard working me, while giving this louse who can’t pay his bills a break.
This is called cutting off your nose to spite your face.
First, no one said life was fair. And second, if your neighbor Joe loses his home to foreclosure, YOUR property value decreases almost immediately (by how much depends on many factors); but it does decrease. And, the longer Joe’s foreclosed on home sits vacant, the more property values in your neighborhood as a whole continue to decline.
And not for nothing, once Joe loses his home, you don’t know if your new neighbors are going to be renters who don’t give a squat about your neighbor, or the pyscho neighbor from hell. You know Joe, you’ve lived next to him for the last 7 years; he’s a decent fellow, even if you hate the fact that he lets his grass get a little out of control before mowing.
Better to stick with the devil you know, no?
Turning “Owner Neighborhoods” into “Renter Neighborhoods”
One thing the aforementioned article notes is that private investors have been buying up homes and renting them out. The government has even solicited investors to buy foreclosed homes and turn them into rentals.
This could turn into a nightmare that no one is really addressing right now. How? Renters don’t care about property like homeowners do. That’s just a simple fact. And, who are these investors likely to rent to. Section 8 tenants – because it’s guaranteed money.
So, when owners see their neighborhoods turning into primarily low-income renters – from primarily working or middle-class homeowners, this changes the complexion of the neighborhood.
How long do you think many of those homeowners left behind are going to continue to struggle to pay mortgages they can barely afford if this starts happening on a large scale?
For more on this read Foreclosure Crisis Lessons: How Foreclosures Affected One Neighborhood. So while in theory it may seem like a good idea for investors to come in and swoop up properties and rent them out, what about the long-term consequences?
The best thing to do is to work with existing homeowners to help them stop foreclosure and hang on to their homes. It’s better for the neighborhood, better for property values, and in better for the housing market as a whole in the long run.
And, if it means giving a principal reduction – then do so for heaven’s sake. In the long run, so much more can be lost and it can take years – years – for a neighborhood (and hence the market) to recover.
Why is this so hard to see?
The Foreclosure Crisis: Why the End Is Nowhere in Sight
The aforementioned LA Times article notes that some 1.5 million homes are scheduled to be foreclosed on next year. And, one things is for sure, with so many homeowners remaining jobless/underemployed and this number could be even higher if this crisis continues to drag on with no REAL solutions put forth.
The bottom line is — while it may not be “fair” that some homeowners receive help to hang onto their homes (ie, get principal reductions), in the long run no one is served when a home is foreclosed on – except the lawyers and realtors who make money on real estate deals.
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Related Posts
Stopping Foreclosure: Banks Considering Giving Principal Reductions, Permanent Modifications & More to Prevent Foreclosure for Many Homeowners
2 Foreclosure Options for Homeowners with Little or No Equity in Their Homes
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Mortgage Loan Modification: Top 10 Questions About (Home) Loan Modifications
Home Foreclosures: Why So Many Homeowners are In Limbo When Trying to Refinance or Modify Their Home Loans Now
Foreclosure & Credit: How Does Foreclosure Impact Your Credit Report?
How to Lose Your Foreclosed Home at Auction and Still Receive Thousands of Dollars
Home Loan Help: Documents Needed to Apply for a Mortgage Modification with HSBC (and Other Lenders)
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Copyright ©2011 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.
