Thursday, February 12, 2009

Mortgages, Foreclosures, and Help for Homeowners

According to RealtyTrac, a company that watches foreclosures nation-wide, the rate of foreclosure increases has dropped. While there was only an 18% increase in foreclosures during January of this year as compared to January 2008, that is still a hefty increase. Put in perspective though, they also report that 1 in every 466 US homes is in foreclosure. Startling? Sure, but that is only two-tenths of one percent or .2%. Is this high - yes but, we have not gone beyond the point of no return.

Perhaps this view will be against the trend, but I believe that there will be another spike in foreclosures in March. Homeowners have had the "luxury" of moratoriums on new foreclosures is a loan is with FannieMae or FreddieMac; that ended on January 31st. Additionally, many states had stopped all actions against homeowners to give everyone time to figure out what to do. NO ONE DID!

The new "Stimulus" bill, passed last night will help the economy in general, and therefore ultimately help homeowners, especially those who are currently out of work. BUT, the trickle-down effect will take time and 1000s of homes will be lost in the interim. The basic question remains: How do we (the government) stop foreclosures, or a least give the average homeowner a fighting chance?

The problem traces right back to Wall Street when mortgages were securitized, when no one had any risk except investors in the financial markets. The worst part of the securitization, after taking into account that the elimination of risk allowed dreadful loans, is that no one entity has any authority to allow real modifications on the mortgages that are in these bundles packages called "Mortgage-Backed Securities"(please refer to prior posts, specifically December 22 and January 3.) The people borrowers deal with when they call for help is the Servicer. They just collect checks, send bills, make sure taxes are paid etc. They do all of the administrative work but HAVE NO AUTHORITY to change terms of the loan.

Many of the attorneys who represent Mortgagees(Lenders) against Mortgagors (Homeowners) have stated that they would and will recommend a modification in line with my suggestions but their client, the SERVICER, does not have the right to change the terms enough to matter. The agreements among the Servicers, Trustees (the banks who manage the MBS and "hold" the assets for the benefit of the investors), Financiers (the companies/banks/lenders that puts the package of loans together for sale) specifically prohibit a change in the rate, principal amount etc.

Congress must provide Mortgage Servicers with some type of guaranty that they will not be sued if they modify loans. Congress can reform the Bankruptcy Laws and give Judges the right to determine if a mortgage should be modified; they can pass a law that indemnifies Servicers for Modifications assuming the modification is based on a full evaluation of the Borrower's circumstances; or what ever other solutions the Treasury, the Federal Reserve, Congress, or Wall Street determines will allow Servicers to make the changes necessary to stop foreclosures that are being forced by adjustments up in rates and down in housing values.

At least we are moving forward. Congress has taken the first step; the second one better come quickly.

Author's Copyright by Richard I. Isacoff, Esq, February 2009