Changes to the Lending Industry, Changes to Our Economy

Mortgage companies have been working to help homeowners by “easing terms” on tens of thousands of home loans…reportedly about 79,000 of them in the past couple months.

To quote Reuters News, “Total workouts in August, which include new payment plans for existing contracts, slipped to 188,931 compared to July’s 192,220, according to Hope Now, the voluntary coalition of mortgage servicers and investors.

In all, the industry has performed some form of workout on 2.3 million loans since July 2007. About one-third of those were permanent modifications, Hope Now announced Thursday.

Paul Koches, general counsel of subprime mortgage servicer Ocwen Financial Corp., said a loan modification benefits both the borrower and the lender because losses on foreclosed homes are running at more than $100,000 per property. "It sure beats the alternative," Koches said.

Nevertheless, the level of loan modifications varies dramatically in the industry, according to a Credit Suisse report released this week. Among 18 loan servicers, modification rates among subprime loans made since 2005 ranged from under 2 percent to nearly 18 percent as of August. Ocwen Financial had the third-highest level of loan modifications in the Credit Suisse report.”

My question this past week has been “Is this helping?” There’s the obvious effect of helping individual homeowners keep their homes, and on this level none of this should be scoffed at. I’m all for it. My concern, as many people these days, is for the economy as a whole. Being in the real estate business, what’s going on around us everyday touches a much bigger picture. It’s one of the things I love about the business, but when the bigger picture is a little scary and I’m in new territory, I get a little antsy is all. It’s of course going to be tough, if not impossible, to pin down the net effects of these mortgage and bailout measures.

Homeowners keeping their homes is good. A bailout to grease the wheels of our economy is good (wheel greasing is good right?). But when that stimulus dries up too, where will we be? Will we just do another one? Didn’t Japan do all this 10 years ago? Don’t quote me, but I think they did 10 or 11 stimulus packages like this. I’m no economist, but couldn’t we potentially learn a lesson here? Maybe the lesson is that bailouts make us feel better but don’t actually fix anything. Discussion please. In my best estimate, we’re in a dry spell now, and that’s not necessarily a bad thing. Economies go through recessions…they’re never fun actually, but we’ve done it before, yet we seem to be avoiding this slowdown like the plague. Does a continuation of foreclosures sound like fun? Does a credit freeze up sound like breath of fresh air to me? No, but since when has any economy been able to engineer themselves out of a downturn? Tell me, even one example, when it’s happened before that a society was so smart as to be able to steer it’s economy clear of any downturns, yes even depression from time to time. OR, tell me why or how we’re different, or smarter, or better. Just because we really, really don’t want a deep recession doesn’t weigh in as far as the market’s concerned. If we’ve created and depended upon false values in financials (we have) and real estate (we have), then those false values are going to have to work themselves out of our system at some point.