Saturday, December 20, 2008

Foreclosures Continue


Secretary of the Treasury Paulson has informed Congress that the second half of the $700 billion bailout money has to be released for use NOW, because the first $350 billion has been used, none to help homeowners in foreclosure. More outrageous is that none of the remaining funds are being set aside to stop lenders from taking borrowers homes.

The pace of foreclosure sales is going to accelerate after the 1st of the year; the mortatoriums put in place by many states will be expiring, letting the Mortgage Servicers move against delinquent borrowers. Neither Congress nor the Treasury, which controls the TARP money (bailout), is taking any action to save homes. Despite warnings, from economists, the FDIC, housing industry experts, and investment market experts, that the credit crisis and economy's crisis will not abate until the housing issues are addressed, the present Administration and those entrusted to fix the problem have chosen to continue on the course of action initally taken -money to financial industry entities.

There is a logic behind this approach in theory, but reality has shown it not to work. Congress thought that by giving money to financial institutions there would be a "trickle down" to homeowners; that banks would lend money to individuals, enact loan modifications to save homes, and generally ease credit (the easing of credit to be addressed in a later post). Instead, money is being hoarded by the banks which are recieving the funds. They are solidifying their balance sheets, increasing their reserve of cash, but not lending, especially not lending to homeowners for loan modifications.

When this matter is brought up, the near unanimous response is " we cannot modify loans because there are no loans, just securities, and the investors will not permit modifications". Why is Congress and the Treasury silent on this issue. The "problem" can be fixed but not without political fallout. Would there be isues with the investment community, sure, but any dislocations are minimal compared to the downward spiral we are going to continue to endure if the housing crisis is not fixed.

As we consider why our friends, neighbors, and we lose our houses, we must put pressure on the Treasury and Congress to stop the financial insanity of allowing more and more homes to be sold at foreclosures, ensuring losses to the lenders, or investors, and increasing the glut of homes for sale, thereby driving down prices further, forcing more institutuions to need bailout money.

Putting aside politics and government inaction, the next installment will deal with credit and how to save your home.

Author's Copyright by Richard I. Isacoff, Esq - December 2008

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