Ways to End the Foreclosure Crisis
Posted on May 20, 2009
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The general opinion is that to bring back the health of the economy the first thing is to tackle the housing calamity. There is however no unanimity about the ways to end the foreclosure crisis.
The Bush administration had floated the idea of negotiation of mortgage loans that the borrowers could no longer manage. FDIC had come up with the plan of bailouts and the Treasure made available a fund of $700 billion for the same. But so far the results of these programmes have been poor and this needs probing into more possibilities.
Huge numbers of mortages were made into packets, sliced and then sold in bits and pieces to investors across the globe. Thus if the mortgages are renegotiated the investors are hit with losses. This stands in the way of modification. Recently JPMorgan Chase declared modification efforts but it applied only to the loans it directly owns – it being 22% of the total number of mortgages it otherwise handles or services.
Experts opine that despite this hurdle there is a way out of the impasse and it is not impossible to redo even the loans that have been securitized. Ocwen is a jumbo servicer of sub-prime mortgages. It has modified 14% of the loans it handles till the close of September 2008. It has a state of the art computer model to figure out how much a borrower is agreeable to pay. The data being fed into it covers projection of further fall in housing prices in the regions where the house is located and also the borrower’s place of work and the possibility of job loss. If the future estimates of payments is more than the amount that can be recovered from foreclosure then the modification process starts rolling. William Erbey the CEO of the firm said, “We’ve successfully answered the main concern by investors [in securitized mortgages], which is, Will my return on investment be better or worse with loan modification?”
A common line of thinking is that to get the notice of the lending firm is to put a halt on dispatch of monthly cheques. But the industry is sobusy with those borrowers who are already delinquent that it cannot focus on the first defaulters. Here again the problem of securitization pops up. In many service agreements it has been ruled that loan workouts cannot be talked about until the borrower is lagging behind 90 days in mortgage repayments.
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