Oct 23 2008
Foreclosure Pandemic Cannot Be Solved With Wide Strokes
To paraphrase Senator Barack Obama, we need to use the strokes of a scalpel and not the hacks of a hatchet to solve the economic crisis facing the nation today. While Sen. Obama was referring to the Federal budget, the same advice should be heeded when discussing possible solutions to the mortgage foreclosure crisis.
Recently, Bank of America purchased Countrywide Home Loans and immediately put most of the loans on hold in an attempt to work the loans out with the borrowers. In order to qualify for possible loan modification, the property must be the borrower’s primary residence and the borrower must have an income substantial enough to make the monthly payments on the new loan. However, putting all of the loans on hold may not be the smartest move when it is only a small percentage that will be able to be adjusted.
If there were a nationwide moratorium on foreclosure, it would cripple the way the nation currently runs. Banks would not be able to stay in business. The finance world would see massive layoffs and unemployment would skyrocket. Since the banks wouldn’t be permitted to collect on the loans they currently own, they would cease giving any more loans out. That means no new homes, no new cars, no small business loans, and no financing for jewelry or Christmas presents. America would stop running.
Perhaps a better plan would to carve out exactly those loans that can be modified. If the banks simply go through the loans currently on file and foreclose those homes that have been abandoned first, they will be able to turn around and sell those homes to new qualified buyers at a discounted rate. New homeowners will provide the bank with income and raise the property values of those houses surrounding currently vacant properties, which can sometimes become havens for drug dealers and vagrants.
After all of the vacant houses are foreclosed, the banks should then focus on modifying those loans that are in default, but with borrowers who are gainfully employed and had fallen on temporarily hard times or whose loans have adjusted to levels higher than they can currently afford. At this point, the homeowners who are trying to protect their homestead will be successful in doing so, the banks who intend on staying in the lending business will be able to, and the housing market will begin to level out and even show signs of increasing.
Currently, eighty percent of the people in this country own homes. According to the United States committee on Housing and Urban Development, only seventy percent of adult Americans should ever own a home at any one time. We dont need to foreclose all eighty percent to save the banks. We dont need to protect all eighty percent to save the homeowners. We need to reduce the amount by a mere ten percent. We need a scalpel, not a hatchet.
