Foreclosure crisis worsened by not allowing jumbo financial entities to fall

Posted on July 28, 2009
Filed Under Foreclosure Homes | 2 Comments

As the housing crisis worsens there is a strong opinion gaining ground that the foreclosure crisis is worsening because of not allowing the jumbo entities to fall. In the middle of 2007 Bernanke had referred to the sub-prime problem as being modest. Since then, delinquencies in mortgages have shot up by 300% and jobless woes up by 100%. The economy is in recession. There are no signs of improvement but all the indications are there of fresh storm brewing.

The attitude of the administration was akin to the ostrich burying its head in the sand. There was no real plan worth its name put in the field. There is rot and decay all around while the vultures are having a ball. The solutions have come to be viewed as more damning than the basic problem. Many modification firms are fraudulent. Since no statesman having substance and foresight came forth to deliver the goods these vultures filled up the void – buyers of distressed assets, managers manipulating distressed sale, and REOs specializing in collapses.

The continuation of the rot is because of there being no plan worth its name. While the carcasses rot the vultures are taking the picking. The mortgage lenders, banks and servicers are busily covering their trails and at the same time turning the crisis into opportunities to make more dollars. Nobody is doing anything worthwhile. Little wonder then that there is a surfeit of activities like short sale, drop-bid sales, bulk purchases of properties in distress etc.

Initially it had been expected that modification would be accomplished in six months time. There was no dearth of talent to do that with the help of latest technology. The method of course is not what the lenders resort to currently – actually it is far simpler than that. It is also uniform in effect and would have done away with the vultures.

An example will illustrate the process. One borrower tried to modify his loans sometime in February 2009 but after three months he found himself stationary at the point from where he began. It was the same in August with neither lender nor servicer with whom to open communications. Incidentally the loan was not covered by either Freddie or Fannie. Fortunately the client could pull along because of having a job albeit on a reduced income scale – it having gone down by 35% in two and a half years. The modification delays are sometimes leading to legal conflicts. Delays are inexcusable. Many who originated the crisis are now originators of the new one.

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