Are Foreclosures Good For America? Part 3 by Bill Roberts

Until now banks had three options for under-performing loans:

• Workout a modification
• Accept a short sale
• Foreclose

I would be very interested to hear how successful homeowners have been in obtaining a loan modification. It seems that if they were in default the lender's customer service representative can't or won't talk to them. They will only accept "full" payments. By the time the Loss Mitigation Department gets involved, the borrower owes six payments or more and they can't really see a way out. On the other hand, if they aren't in default the lender has no incentive to modify their loan. Is this a catch-22 or what?

And I hear a lot of agents complaining that they can't get a short sale approved.

Foreclosures are at all time high with many more to come. It seems that this is the option of choice for most lenders.

It could be that there are very good reasons for the bank opting to foreclose rather than choosing to do a workout or approve a short sale:

• It is the "way we have always dealt" with defaulted loans
• Nobody wants to accept responsibility for accepting a short sale
• The Mortgage Insurance Company won't pay unless the loan is foreclosed
• The borrower wasn't insistent enough
• The servicing agent wasn't the owner of the mortgage
• It was easier for the servicing agent to foreclose
• Bankers are a bunch of arrogant jerks

Maybe you know a few more reasons.

New Rules

Well the rules have just been changed. The Federal Rescue Plan will move these loans out of the control of the banks and loan servicers and into the bailiwick of the Secretary of the Treasury. The program will require that a workout and/or a restructuring of the loan be performed. The emphasis will be keeping the homeowners in their homes and collecting money, not on foreclosing.

The terms of the act approved by Congress will require that the homeowners are treated fairly. Nobody benefits from a lot of foreclosures. In order to accomplish this the loan may need to be restructured to reflect a lower interest rate, a reduction in the amount owed, or forgiveness of payments missed. Maybe all of these will be necessary.

In the final analysis, most of these mortgages will be repaid, the neighborhoods will be more stable, real estate values will "heal," and the country will be better off. And Treasury will get our money back, maybe even a little more than we "advanced."

We Win

Maybe we "saved" the banks, but in reality we saved ourselves.

See also "Are Foreclosures Good For America? Part 2"