Thursday, January 29, 2009

Foreclosures: When Will Someone Do Something?

As has happened before and will again and again, Congress and the Administration state they want to help homeowners facing foreclosure, due to job loss or predatory lending, but no one can figure out how. The problem, I believe is caused by a total disconnect with the problem facing people and the problems being caused by the major economic upheaval we are experiencing.

The financial markets, our own and those world wide, are in chaos, due in large part to the actions of Wall Street fund managers and the disintegration of loans based on the lenders' risks. Washington is viewing the problem as a challenge to the system, not as a hardship for homeowners/people. The logic cannot be faulted in a view from the top down. BUT, from the bottom up, meaning from the view of families, the fight must become top down and bottom up, at the same time.

As posted before, many mortgage servicers, the folks who collect our payments, have no authority to modify loans; at least that is their view. They would be subject to suits from those who have invested in the gigantic pools of mortgages, and find their return on their investment diminished. That can be fixed by giving Courts the right to adjust unfair mortgage terms, or by passing a law that allows or mandates that certain contracts, namely the contracts regarding these mortgage pools, can be changed without liability (within certain parameters). Heresy to a free market? Maybe, but a little bit of deviant behavior is better than the death of the system.

The vote on January 28th in the House of Representatives, to approve or not approve the President's stimulus package, was decided solely on party lines. ALL Republicans voted against it. Were any members required to vote with the President? NO! However, it is not reality to think that not one Republican agreed with the bill. Politics of the worst kind is preventing true relief from making it to homeowners. Understand that the Democrats have no bills before Congress to actually stop foreclosures by modifying loans, that is by forcing those controlling the mortgages to negotiate in good faith with borrowers, so an affordable payment can be paid each month.

There is no simple, one size fits all, answer. Giving the Bankruptcy Courts the power to modify mortgages is part of the solution; relieving servicers from liability for modifying loans is another; a third might be to have a federal agency refinance, or underwrite the financing of homeowners in trouble. DOING NOTHING IS THE ONLY REALLY WRONG DECISION, yet, that is where we are.

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

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