There is Small Logic in Big Wave of Foreclosures

Posted on July 10, 2009
Filed Under Foreclosure Homes | 1 Comment

There is small logic in big wave of foreclosures. In the last week of June the stock market again shuddered and tumbled following news that foreclosures have again increased during the first quarter. The Comptroller of the Currency noted that of the 34 million loans they are tracking, 22% increased to touch 844,389. The number is 75% more than the previous year during the same time. The comptroller’s office however had a word of hope – loan modifications speeded up by 55% during this quarter.

John C. Dugan of the Office of the Comptroller of the Currency said in a statement “As the administration’s ‘Making Home Affordable’ program gains traction and helps offset the impact of this very difficult economic cycle. We should continue to see progress in future reports.”

A peep into the data of the second quarter however shows that the improvement that Dugan and his office talks about in Washington may take longer to impact. This is causing eyebrows to be raised about the role of politicians and lenders and if they are acting with enough speed to avert disaster.

Foreclosure ills continue to dominate the ailing economy. The Bush administration failed to take into account the depth of the crisis affecting the average American. The focus rather was on propping up the elite and the troubled financial institutions with money coming from the taxpayer. The Obama government has come forward with many schemes to encourage modification of loans but so far its efforts too have not been able to stem the rush of new foreclosures.

Loans are modified when the banks permit changes in contract terms. Generally the interest rate is lowered. Cutting down the principal amount occurs in rare instances. The lenders are reluctant to modify the loans by cutting interest rates or reducing principal. It is not surprising therefore that only a trickle of loan modifications are happening.

In March the government has come forward with a new programme to encourage the modification of loans. It offers carrots to loan servicers. They will pocket $1,000 for each loan they modify. But the lenders are tacking on late fees and due amount to the tail end of the loan making it difficult for borrowers to continue even with modified loans. However data coming in does not yet give reason for hope that the programme is working – at least to what extent the government had hoped for.

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