The growing consensus on averting foreclosures
For someone who doesn't seem to get much traction within her own administration, Sheila Bair at the FDIC seems to be having more influence than anyone else in Washington over how to respond to the subprime meltdown and the resulting wave of foreclosures.
Bair started calling last year for lenders to rework potentially troubled mortgages en masse by converting adjustable rate loans into fixed-rate ones. The administration instead promoted the Hope Now Alliance, a voluntary effort by lenders to adjust troubled mortgages on a case-by-case basis. The result: far more homes went into foreclosure each month than loans were modified (according to Hope Now, only recently has the pace of modifications caught up to the pace of defaults). Worse, it took lenders months to start offering meaningful adjustments in interest rates and monthly payments, rather than simply tacking unpaid interest and penalties onto the back end of loans.
This year, Bair set the tone again when the FDIC took over IndyMac Bank and its portfolio of poorly underwritten (and rapidly defaulting) mortgages. It declared a moratorium on foreclosures as it examined the portfolio, determining which mortgages met or could meet a standard level of affordability -- a 38% debt-to-income ratio (that is, monthly payments no greater than 38% of the borrower's monthly pay) -- given certain types of loan modifications, including steep but temporary reductions in interest, longer payback periods and delayed repayment of a portion of the loan balance. About two-thirds of the at-risk borrowers qualified for help, although the agency initially had trouble reaching many of those borrowers. If this kind of plan were implemented widely, the FDIC said last week, about 1.5 million homeowners could be saved from default.
Bair's approach has been embraced by California lawmakers who've been active on the foreclosure issue, notably Assemblyman Ted Lieu (D-Torrance) and Assembly Speaker Karen Bass (D-Los Angeles), as well as Gov. Arnold Schwarzenegger. The main difference between the governor and lawmakers is the length of the moratoria they propose -- the Democrats want 120 days, Schwarzenegger proposed 90. That's a minor detail when compared to their agreement on the need to pressure lenders to make more sweeping and aggressive moves to avert foreclosures. Lieu's bill has hit a snag in Sacramento, yet the ideas he and the governor espouse reflect an emerging consensus on how to handle the foreclosure crisis. Sparked by Bair -- outside of Washington, at least -- it reflects how deftly she's handled the moral hazard issue. The FDIC's approach doesn't save lenders or borrowers from the pain of having made bad choices -- none of the borrower's debt would be forgiven (a costly move that has little support among banks), nor would lenders or investors recoup the face value of the loans. But it would help lenders recover more than they would if they repossessed the home, while giving borrowers time to find a less calamatous way out of their troubles.
Photo by Chip Somodevilla/Getty Images
There is no need for many of these foreclosures. There are some investors like my family whose only crime was to invest in 2005... at the peek. We put money down and never missed a payment... until now. Now the properties we invested in are not worth what we owe. The economy is bad and it is not only hard to rent our properties but the rents we get are less and our insurance, taxes, HOA fees etc all went up. There is no one to buy these properties either. All that we ask for is for the mortgage companies to make out monthly payment equal to the income on the properties until the recession (depression if you ask me) passes. Maybe even forgive part of the loan because if they foreclose they will be lucky to get even 50 cents on a dollar these days.
However, I never hear my demographic discussed or even mentioned. We were not "trying to get rich overnight" as the fellow from Bankrate.com said this past weekend on TV. We were trying to work fairly and honestly. But we were indirectly lied to by those in the mortgage business who were secretly leveraged out 40:1 on these subprime loans. Believe me, had this been public knowledge we surely would not have "invested" in any property. It was a big lie!
Why is this so hard to get across? Make my cashflow even and the problem goes away. It is simple!
Posted by: tom | November 19, 2008 at 06:47 PM
I would like to know how this mortgage-relief plan could help me....it says only a fracton of borrowers will qualify.Who is the fraction? Why would I be considered and not someone just as in need as I or the other way around. I have owned this home now for "11" years, worked for 35 years, and have been marrried for 30.
Now I find myself unemployed, my husband is struggling in his job, we're nearing foreclosure, we have a daughter struggling with cancer (which is a whole other issue), and really finding no way out......Do they want us all homeless or what?
I think the 38% of income is a great idea, lower interest rate another, and extending the loan is yet another.
How do I sign up?
Posted by: Cathy Davis | November 20, 2008 at 09:02 AM
If you're looking for help on a mortgage, there are a growing number of groups eager to step in. Here are a few ideas.
The HOPE NOW Alliance is a group formed by lenders, but it also provides a gateway to HUD-certified housing counselors. It has a hotline for homeowners -- 1.888.995.HOPE. You can also see a list of housing counselors here.
One such counseling group is ACORN -- yes, the controversial community organizers. ACORN has a long track record of helping people with housing problems. Their office in Los Angeles is at (213) 748-1345. You can see a list of other ACORN offices here. Also in Los Angeles, Operation HOPE has a homeowner hotline -- 888-388-HOPE. Those are just two of the groups working on this issue.
Unfortunately, I've yet to see any efforts made on behalf of investors such as Tom's family. Every aid program or intervention is targeted squarely at owner-occupied dwellings or renters, not landlords. I'll poke around and see if I can find anything to the contrary.
Posted by: Jon Healey | November 20, 2008 at 11:01 AM
The fed needs to deal directly with property owners like me; not just provide more opportunities for more and more “middlemen” to make even more money off of this situation through refis etc. What did I hear…the Fed Rate may be going to "Zero?" Come on now.
If my “investment property” gets foreclosed on what does that do to the “owner occupied” property next door’s value? (A “non owner occupied property” only means that the mortgage holder does not live there. It does not take into consideration people who may have property in their names that family members may live in)
It is pretty well agreed upon that the no doc mortgages were what created this problem so let people like me who have been robbed by this scam get some "no doc" assistance. Just lower our monthly payments to an amount we can pay. It is so logical. Please forward this concept to anyone you can think of.
Don’t tell me how complex these packaged mortgages are. Just lower people’s monthly payments. Problem solved.
Posted by: Tom | November 20, 2008 at 12:04 PM
Thanks for info Jon....Still don't quite understand how this is coming into play as of December 15th.... Do you contact the people you have listed above? How much time do I have if even approved for something like this....and most importantly "hoe much does it cost"?
Posted by: Cathy Davis | November 20, 2008 at 08:11 PM
The counseling should be free. Here's a guide to counseling agencies who are paid by the federal government -- http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?weblistaction=summary. Find one near you and give it a call.
Posted by: Jon Healey | November 20, 2008 at 08:19 PM
I have investments in stocks. Where is my bailout?
Why do you think my taxes should be used to pay for your stupidity? There were many many articles on this website about the 'housing bubble' three years ago and the only question was when it was going to burst. Ignorant America's response: Buy more properties and use adjustable rate mortgages when fixed interest rates were at their lowest in 50(!!!!!) years.
I realize it sucks to be in that situation. But the next time you hear on the news that tech stocks have tripled in value over the past month be warned that it means it is time to sell, not buy.
Posted by: Thomas | November 21, 2008 at 10:13 AM