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Ways to cut down on foreclosures
Commentator David Abromowitz
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TEXT OF COMMENTARY
Kai Ryssdal: Here's a new idea from the Obama administration. Instead of working overtime to figure out ways to keep homeowners who're in financial trouble in their homes, the White House wants to pay some of them to leave. The New York Times reports today the Obama administration's going to start encouraging short sales, in which the bank takes less for a house than is left due on the mortgage. It'll sweeten the pot by offering both lenders and homeowners token remuneration to move the deal along. The plan could, if it works right, could help cut down on foreclosures.
Commentator David Abromowitz offers some other ideas.
David Abromowitz: It's 2010, and foreclosures have gone viral. One in seven American families have fallen behind on their mortgage payments. Many others keep paying, but owe more than their homes are worth. And studies show that more than five million of these families are hitting a dangerous "walk away" point -- where it makes more economic sense to just hand over the keys.
Despite government incentives, lenders have done little to give homeowners a reason to hang in there. True, recent Obama administration help for hard hit states is better targeted, but it only goes so far.
Congress can't just hope this foreclosure fever will break on its own. We need concrete solutions before our economy gets too sick to recover.
Here's three ideas to consider...
One -- mandatory mediation. This has worked well in Philadelphia and Connecticut. Mediation between borrower and lender prior to a foreclosure unclogs courts, and achieves faster, cheaper, and better resolutions for all involved.
Two -- a national foreclosure moratorium. During the Depression, many states temporarily stopped foreclosures. This gave struggling families time to work out a payment plan, or maybe even find a job. A national measure today could motivate lenders to offer more aggressive loan modifications.
And three -- eliminate the special tax break for mortgage investors. This one is complicated, but potentially the most effective. You see, mortgages are actually owned in big pools, called Real Estate Mortgage Investment Conduits -- REMICs.
Investors in REMICs enjoy valuable tax benefits. These tax breaks were intended to encourage private capital to fund home ownership. Yet with shares in REMICs sliced up among so many investors, it's practically impossible to get them to agree on slowing down foreclosures. If instead we eliminate the tax break when a REMIC just keeps foreclosing, they will change course quickly to modify loans whenever possible.
All these remedies create consequences for lenders who keep needlessly foreclosing, giving them an incentive to negotiate first. And none of them require more public spending. That's got to be better than staying the course.
RYSSDAL: David Abromowitz is a senior fellow at the Center for American Progress.
Greg from KS, has the right idea. In fact it would help to give back all the SS input people have paid. Since people in their 40's & 50"s will more then not realize a payment when they retire. And think about it this is a very large part of our population that are facing foreclosure/ bankruptcy due to under employment or out right unemployment and not sub-prime borrowing through liar loans. Also a moratorium on foreclosures will give the system time to weed out the flipper's and speculators who have investments in properties in FL,NV & CA to name a few and to identify the lenders/builders that caused this crisis in the first place, let that group of people go at it amongst themselves and leave the innocent people who have been effected out of this. The fact here is that we as a nation are in an economic crisis due to these people. It is time to take a stand and demand that people in trouble by no fault of their own be protected!
While I applaud Mr. Abromowitz for thinking out of the box, his ideas have about as much chance for success as the latest proposal from the administration -- zero. If the predictions that unemployment will stick at around 10% throughout the year (which means under-employment will be in the 16-18% range), prime borrowers will continue to be pushed to foreclosure. This country is facing a foreclosure Tsunami that not only impacts the 5 million families, but also endangers homes around them to become devalued to the point of becoming "under water." Thus, it may be many more than 5 million homes because as those are sucked down they may drag down hundreds of thousands or more.
The administration and Congress don't have a clue on how to deal with this problem. One person who has offered several logical, concrete solutions is former Labor Secretary and Marketplace contributor Robert Reich. Check out some of his blogs from earlier this year. They should make him the "Housing Czar" and allow him to oversee the implementation of his proposals which, if need be, come through executive order since Congress will never get around to passing any meaningful legislation.
Foreclosure moratorium? So essentially Commentator wants people to stay in their homes rent free!
Doesnt marketwatch screen these commetrators? I mean cant you find people with common sense? Always you you get either liberal nuts or right wing nuts on your show.
It's nice to see ideas that wouldn't cost taxpayers anything, but even so two of these three proposals are most likely unconstitutional. A state or local government may have the power to enforce mandatory mediation or forbid foreclosures within its boundaries, but the federal government only has the power to regulate commerce between consumers or businesses in different states, which hardly describes most mortgages.
I've got a better idea.
The American public is getting tired of bailout programs, and the record debt has become counterproductive.
Instead of more government spending, allow distressed homeowners to take an advance on future social security payments to meet their current debt obligations. This will allow homeowners to remain in their home.
Future social security income will be reduced, but this could be offset by setting up a reverse mortgage on their home.
The future value of the advance when the homeowner retires could be determined based on the size of the advance and the interest rate on a government bond of a similar term.
I heard the broadcast this evening when David Abromowitz discussed the idea that the government(the President and his crew) might suggest to lenders that they consider accepting short sales to help stem foreclosures. I think that this is a marvelous idea; however I don’t think I would necessarily make it to the bank’s advantage to do so. Sweetening the pot a little would be acceptable however our American Bankers, Insurance companies along with the rest of Wall Street have really hosed the American Public.
If you look at their financial statements, with the exception of a few, banks have been doing very, very well. The reason that I also included Insurance companies along with Wall Street is that they are all in the mortgage business one way or another. They either write the loans or underwrite them.
I worked, years ago, for a Bank Holding Corporation in Texas. During my tenure with the Holding Company I met many very fine financial folks who really knew what they were doing. I am very grateful that I had this opportunity because it certainly enriched my banking knowledge. I am able to look at what has happened to our financial institutions with some knowledge of the industry.
At one time the Fed was really good. There was very little that escaped them. When they walked into our holding company we knew that we had to belly up to the bar and whatever they asked for they got. They knew what to ask for and for some reason it was always those areas of concern where we might have not been quite up to snuff. They were good at what they did. I don’t know how you would revamp the Fed to take them back to those days when they did not accept anything except your very, very best and we always made sure we gave it to them.
Here are a few ideas on what I would do to revamp the Fed:
Retrain the Fed, reminding them of their original charter.
Give them a new Charter
Give them the power to affect change
Enlist the aid of Fed retirees who worked for the Fed in its infancy, if any are still alive.
Do it NOW.
And perhaps my best idea is to not let anyone in our Legislative branch touch it. Our Legislative branch appears to be too busy, dealing with Toyota and the like, to deal with anything that could possibly be this important. You never want to assign an important task to a group of ineffectual(s), and that is all three parties, including independents. Is ineffectuall(s) a new word or perhaps I could use futile(s) instead? It would take our Legislators years to accomplish this task. These are my ideas and I’m sticking to it.
I was appaled that Mr. Abromowitz suggests revokacation of the benefits of a REMIC if they do not mediate on a foreclosure. if payments are not made the investors, mostly small individual investors part of an IRS or 529 plan have no recourse to recoup their money than a farced sale. Money managers can negotiate for the REMIC, but to further erode retirement and education accounts, to save a few hundred unfortunate people who have lost jobs is jusr wrong. REMICS were created to get the plumbers, teachers, and irragation installers to invest their money in the real estate market. Now Mr. Abromowitz wants to punish the little guys who tried to help the economy twice.
