Lots happening on foreclosure front
Politicians and regulators at multiple levels are moving quickly with measures and ideas to stop the wave of foreclosures sweeping the country.
In Massachusetts, the state Legislature passed a bill late Tuesday that gives borrowers who fall behind on payments 90 days to catch up. It also limits the fees lenders can charge for converting an adjustable-rate loan to a fixed-rate.
Meanwhile, in California, Gov. Arnold Schwarzenegger struck a deal with four major loans servicers--the bill collectors--to agree to freeze the lower, introductory rates of borrowers with adjustable rate subprime loans. The governor's office said there are a half-million borrowers in California with subprime loans that will adjust to higher rates--and higher monthly payments--over the next two years.
Borrowers have to agree to continue living in their homes during the extended period of lower rates, and be timely on payments. One of the loan servicers said his firm would extend the lower rate for five years.
At the federal level, the director of the Office of Thrift Supervision proposed paying mortgage loan servicing companies a $500 fee each time they modify a loan to help a borrower avoid default. The office oversees savings and loans including Washington Mutual, a leading mortgage lender.
US Treasury Secretary Henry Paulson is also calling on loan servicers to help large numbers of borrowers who are in danger of defaulting. Paulson said restructuring loans one at a time is taking too long and will not be enough to avert a larger number of foreclosures in 2008. He made his remarks in an interview with the Wall Street Journal that was published today.
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More Goverment intervention. People will never learn if they are rewarded when they make poor decisions. Don't worry I will keep paying the tab.
What bothers me about the modification of these subprime morgage is that the people who played by the rules lose. If I took out a 2% teaser subprime mortgage for more house than I could afford, why should I get an option to have that rate frozen? This is the definition of a "moral hazard".
I would rather see the bank foreclose and then offer 2% thirty year mortgages to anyone who purchases the property (with 20% down). This would also assist in keeping the comps up because people would pay more for a house with a guarenteed 2% mortgage than thay would on a house with a market rate mortgage.
Perhaps it's been done before, but I wish someone would objectively break out who is being affected by these foreclosures. My sense is that it is not upper-middle income people who supersized their homes, but middle to low income people who were enticed into homeownership when they should have remained renters. I've purchased two homes in the past 5 years and, even with perfect credit, I had to provide substantial supporting documentation and work with the underwriter to get my loan approved. It seems clear to me the folks getting foreclosed are operating in a very different world than I can relate to. I'm not looking to find ways to blame people, but I wish I could understand better how this problem developed. But I'm tired of hearing simplistic explanations that blame stupid people or greedy banks.
Sigh.
More attempts by the government to prop up unrealistically high house prices by removing any disincentives for bad behavior.
For those of us who understand things like math, it looks like we're priced out forever after all. I don't know why I expected anyone to just let the market to it's work.
Dave: I am currently negotiating a short sale with a person who financed their house in the early '80s for about 200k, they currently have a > 600k mortgage due to refinancing (with a > 9% ARM!). This is definitely a upper middle class house.
Some people just kept refinancing...
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