RISMEDIA, December 15, 2009—Merry Christmas to you and your beautiful family. This is a difficult time to be the leader of the free world, and here at home expectations have been so high that you cannot really blame people for being a little disappointed in the results.
Many things I am not qualified to advise on but I can tell you one thing for sure, your approach to keeping people in their homes isn’t working and you must do something now.
1. Last week, the Treasury Department Reported that only 31,382 homeowners have entered into permanent mortgage modifications as part of the administration’s housing help program.
2. Of those who have grabbed the brass ring, most got no reduction in payment. According to USA Today, “Of loans modified from Jan. 1, 2008, through March 31, 2009, monthly payments increased on 27%, and were left unchanged on an additional 27.5%.”
3. In about 90% of the modifications, the principal balance after a modification was larger, according to CreditSights.
4. And, because we are addressing a symptom and not the causes, 25% have redefaulted according to the Treasury Department.
With all due respect, the defining issue of your presidency is lying right in front of you. You’ve got to keep people in their homes, bridge the gap until they are fully employed, and launch a modern day WPA to get the middle class earning and spending again.
Sure, I understand the priorities and the threat from Islamic fundamentalists, but most Americans are far more terrified of being broke, homeless, and destitute. There’s not much on the terror alert chart to match having to surrender your home.
The best reason to do these things is that they are all cheaper than the alternatives.
According to USA Today, banks repossessed 1,254,000 homes in 2007 and 2008. The Joint Economic Committee of Congress reports the average loss to the lender is $50, 000 on mortgages actually foreclosed and resold. The report also notes that the surrounding homeowners each lose $75,000.
But, from what I gather, the process of securitizing mortgages basically shields the banks from any losses caused by defaults and can actually make the default a profitable event. The Credit Default Swaps could pay multiple times the principal amount so the bank actually has a powerful disincentive to modify the loan and cure the default.
Further, the banks no longer own the securities so modifying the individual notes in the pool could result in class action litigation by purchasers of the pools and or securities violations.
And, now we are learning that they may have created clouds on titles on the properties with loan modifications, or those they in a short sale.
The HAMP program does not address the problem of negative equity.
We need an immediate moratorium on all foreclosures while we determine the role that Derivatives may have played in creating the circumstances through which many people are losing their homes. Only when we understand the impact of debt securitization on our economy will we able to develop solutions that will bring back our prosperity and return a sense of real security to the middle class of America.
We are losing our homes and cannot feed our children. I‘m sure you saw this headline from your local newspaper, The Washington Post, quoting a USDA report. “1 in 7 Americans Went Hungry in 2008.”
“Almost one in four children in our country lives on the brink of hunger,” said David Beckmann, the President of Bread of the World, a hunger advocacy group.
The report also suggests that the numbers will be worse for 2009.
Can’t we do better than that?
Things aren’t working and we need real change. And you may be our last hope.
George W. Mantor is known as “The Real Estate Professor” for his consumer education efforts including a long-running radio program, monthly workshop series, public appearances, and frequent articles.
During a career dating back to 1978, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property.
Prior to starting his own real estate and mortgage brokerage in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS.
George is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.
The Real Estate Professional includes him in “a directory of the Nation’s outstanding authors, columnists, and speakers. His articles have also recently appeared in Real Estate Finance, The Real Estate Professional, National Real Estate Investor, Broker Agent News, and Realty Times. His blog is http://www.realtown.com/gwmantor/blog
