The pandemic of foreclosures continues to wreak havoc on America’s families and communities. While the Administration continues to make efforts to keep embattled homeowner’s in their homes, loan servicers have been more reluctant to help and the pressure is starting to mount.
From incentives to loan servicers to more government backing on loans,
the Obama Administration has done whatever it can to entice loan services to halt foreclosures, and rework loans. Oddly enough, loan servicers are extremely reluctant to modify the loans, even though it is in the best interest of investors and homeowners.
An editorial by the Washington Post suggested that the push to modify the home loans ignored two key economic realities:
- The chance a homeowner will bring a loan current without help
- The risk that the homeowner will re-default on a modified loan
Much of the concern of risk is more fear within the banking community than the truth to the reality. Many homeowner’s are now finding themselves at the mercy of the servicers when their
adjustable rate mortgages reset to much higher rates, based on several factors, that are all in the servicers favor.
The goals of the administration’s plans were to help lower the mortgage payments of struggling borrowers before they fall behind. Instead, mortgage servicers are telling homeowners that they must be behind on payments to receive help. Then add to the confusion about who qualifies and it seems that loan modification paperwork is just being ignored or is taking an unnecessarily long period of time to process, putting more homeowner’s in danger.
The administration has now called for the executives from the mortgage servicing companies to try and understand where the breakdown is occurring and how to help get more hope to homeowners who need it the most.
Now, the government is considering taking action and beginning enforcement actions to try and protect the investors and borrowers in
the mortgage crisis. They are considering rules that Servicers must modify loans before foreclosure whenever modification would benefit both investors and borrowers. They are also giving power to bankruptcy judges to modify home mortgage loans that exceed the value of a homeowner’s loan.
It’s clear that while the market is still concerned about the risk of default, it seems more that the concept of greed is still deep entrenched in the markets with these Mortgage Servicers, while the investors and homeowner’s are left to pick up the pieces.
In the past, the Obama Administration has been working diligently to try and prevent the rise of foreclosures. As foreclosures rise, housing values will continue to fall. This will dangerously impact the market and increase the potential for additional foreclosures. Those who currently have mortgages are trying to protect themselves from adjustable rates which may prevent them from being able to afford their home after the rate resets.
In fact, our next major mortgage bubble may be in adjustable rate mortgages unless the administration takes some quick action to ensure that those in adjustable rate mortgages can still afford the homes. Whether that means some kind of rate freeze of adjustable rate mortgages, or enforcement of loan reworkings, the steps that they take will be crucial to keeping our economic futures in balance.