Despite assurances from the Obama administration that foreclosure reduction programs that have been put in place will help increase loan modifications, the results have been less than spectacular. Will the government now step in and make modifications mandatory?
The last chance for bankers to voluntarily modify mortgages may be at hand.
For the past year and a half, the government has pressed for modifications and set incentives for them — but has stopped short of forcing them. Though servicers have pledged to improve their efforts, progress has been slow, and many still refuse to modify loans in ways that lead to lower payments for the borrower.
The result is a wave of redefaults and increasing evidence that public and private efforts to stop the foreclosure crisis have failed.
Observers say if changes being pressed by the Obama administration cannot improve the situation, Congress or regulators are likely to take more drastic action, including a renewed push for legislation to allow judges to rework loans in bankruptcy.
"If modifications don’t pick up, I think mortgage bankruptcy returns with a vengeance," said Jaret Seiberg, a policy analyst with Washington Research Group. "Bankruptcy is the tool that the government can use to modify contract terms without incurring liability. If we enter the fall, and we’ve helped hundreds of people rather than tens of thousands, there’s going to be tremendous pressure to pass full-scale mortgage bankruptcy. So there’s a lot riding on the implementation of the mortgage modification plan."
Somehow an old saying about the definition of insanity and expecting different results comes to mind.
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twist -
America seems to be evolving towards the August ’07 K-BASS proposal. Looks like Kyle wasn’t wrong, just early.
I’ve worked out a solution to underwater mortgages that does not require Obama to force cram downs on unwilling parties.
Check it out and let me know what you think.
http://thornburgisdead.blogspot.com/2009/05/mr-geithner-ill-take-that-480-billion.html
Kelli -
Thanks for sharing
Doom’s happy to place a link to your post on our sidebar.
Mortgage cramdown in bankruptcy is a good idea as long as the lender has the option to opt out and take back the house. This would also avoid a likely constitutional battle over contract law (commerce clause) that could cost taxpayers hundreds of billion$ if lost.
This leaves the ultimate decision up to the lender and essentially forces them to the table.
John- (#1)
Once more you are shown to be ahead of your time. : )
twist -
More like, Doomer G is one smart guy.
Banks are doing nothing to help borrowers in trouble. People who are struggling due the down turn are being denied by banks for mods left and right. They have NO motivation to help work out a deal.
I’ll believe it when I see it. With the death of the cram down legislation, Congress has sent the message they’ve got the industry’s back.
If banks can be forced to eat the losses on underwater properties, and over 1 out of 5 properties in the entire country are underwater, I have a hard time imagining the banks being solvent anytime soon.
Seems like the only way this kind of cramdown can happen without bankrupting a large number of the banks is that the government takes the underwater loans (and the taxpayer therefore pays for all of the bad investments), therefore allowing people to keep the homes they could never have afforded at taxpayer expense.
Of course, with the government already giving hundreds of billions if not trillions to the banks, why shouldn’t Obama and the Democrats try to purchase a long term hold on power by literally buying homes for their constituents at the cost of hyperinflating the currency for the rest of us?