02/26/10

 

 

 

The Obama administration is reportedly considering a plan that would prohibit lending institutions from foreclosing on a home before a mortgage loan modification is given consideration.

 

In that, I concur with Laurie Goodman, the senior managing director at the Amherst Securities Group who told the New York Times, " We think there is a large public relations element to this." She correctly points out that such a policy probably would have very little real-world effect.

 

The Mortgage Bankers Association also expressed its skepticism, an official, John Mechem, telling the paper, "Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modifications, are exhausted."

 

I should explain that, at the present time, lenders are "encouraged" to consider a mortgage modification when dealing with a delinquent borrower. But the fact of the matter is, as "evil" as some banks and lenders seem to be in many cases, there is little in the way of evidence showing that they simply do not bother to look into the possibility of a loan modification.

 

So, making them do it seems heavy-handed, but not likely to lead to any real change.

 

That's because, the real problem has always been: 1) Failure of the lending institutions to grant permanent modifications following the mandatory three month trial periods and 2) Failure in the vast majority of modifications enacted to lower the principal, thus giving the distressed homeowner more equity in the property.

 

Now, if the Obama administration really wants to get tough, it seems to me, it should mandate permanent modifications combined with, in some cases, a reduction in principal.

 

Obama was in favor of giving bankruptcy judges the right to reduce principal, as they already are allowed to do on second-home (vacation homes, usually) mortgages.

 

One proposed provision of the "plan" does seem to make sense to me: It would prohibit lenders from moving forward with a foreclosure proceeding while the homeowner is in the mandatory three-month trial modification period. The rest, not so much.

 

 

 

By DAVID STREITFELD

Published: February 25, 2010

The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”The government could use some favorable public relations for its modification program, which has been deemed disappointing.Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.The Mortgage Bankers Association said its members were already doing what the administration was considering.“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help. The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed