As most Doomers expected, government plans to stop foreclosure aren’t working. This is not deterring them however, from rolling out one more bailout:
NEW YORK (CNNMoney.com) — As foreclosure casualties mount, the Obama administration is expected to announce additional steps on Monday to get long-term help for troubled borrowers.
Under the new initiative, the government will provide more resources for borrowers and will partner with organizations to offer homeowners assistance, a Treasury Department spokeswoman said. The plan also calls for increased transparency and accountability on the part of loan servicers.
The administration’s move is its latest attempt to jumpstart its $75 billion loan modification plan, which many fear will fall far short of its goal to help up to 4 million delinquent homeowners.
So what is this new, improved plan that will bring the foreclosure problem to a halt? According to Michael Barr, the Treasury’s assistant secretary for financial institutions:
[Th]e government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.
“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.
Shame- boy, that’s going to hurt, isn’t it? Kind of like using the comfy chair. [See below.] Since it’s difficult to shame organizations that have shown themselves to have no shame, [Think fat bonuses by TARP recipients.] it’s not surprising that the government is considering other options as well:
Within the Senate, some discussion now focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before they are allowed to proceed with the sale of foreclosed homes.
Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions.
Critics say changing the bankruptcy code would flood courts with distressed homeowners, and raise the cost of borrowing by introducing new risks for lenders.
Cram-down supporters say those fears are exaggerated, as only those loans made in the past would be eligible for judicial modification, and lenders would step up their efforts to engage in workouts with borrowers to avoid having loan terms re-written in court.
I’m with the critics. States like Arizona with big budget woes are already needing to cut court budgets. Dumping thousands of delinquent borrowers on the court system is likely to overwhelm it. The lending environment is already fraught with risk. The constant threat of government intervention isn’t helping.
Somehow the old saying about There is nothing so bad that the government can’t make it worse comes to mind.
That Treasury official, what an idiot. What rock did he just crawl out from under? He thinks these absolutely shameless, immoral, thieving, duplicitous, conniving, crooks can be embarrassed into doing something? Bwahahahaha! What a tool.
They’re going to keep messing around with this, coming up with ever more useless little programs, trying to hold back the wave. What a fiasco. And of course most people will just say we didn’t do it soon enough or big enough; just like “stimulus.”
Well, there is always the walking away option to bring reality to the mortgage business. Has this AZ law prof’s paper been discussed here yet?
“Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis”
Brent T. White
University of Arizona – James E. Rogers College of Law
Abstract:
Despite reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners choose not to strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1494467
The UA law prof’s paper was discussed earlier this month. Here’s Twist’s post:
http://housingdoom.com/2009/11/05/the-cost-of-not-walking-away-from-an-underwater-mortgage/
Thanks, I was away from my computer for a few days that week. I should have checked the archives better. I actually read the whole 54-page paper, which means that I am a RE bubble geek.
As for the new proposals mentioned, can gov’t really successfully intervene when a life event requires a sale and somebody is 50K, 70k, 150K, 300K underwater? It might produce more modifications outside of the Foreclosure Belt of FL, CA, NV, and AZ, but even heavy spending/intervention is not going to fix someone having paid/borrowed twice as much as a house/lot is intrinsically worth.