Ken’s Take:
“Stop those foreclosures, now !” is one of three recent mortgage-related refrains that make me scratch my head.
The first is a variant of the above one: “we’ve got to keep people in their homes” — with the emphasis on “their”. Seems to me that folks are conveniently confusing “ownership” with “occupancy”. Some lug who makes no downpayment and makes at most a couple of mortgage payments at promotional interest rates doesn’t own anything. He started with no equity, built no equity, and may even be in a negative equity position. It’s not “his” home simply because he squatted there for awhile. Geez.
The second came from the mouth of Ben Bernanke himself: “Putting these people through the foreclosure process (instead of cutting rates & principle) will put a permanent, detrimental mark on their credit records.” No kidding, Ben. Isn’t it the role of credit records to report to prospective lenders that somebody has a history of stiffing people who lent them money in the past. Seems fraudulent to me that the government puts together a process that spackles over that serious flaw.
Now, here’s one of hundreds of reasons that we shouldn’t “stop those foreclosures now.” …
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Excerpted from IBD, “Bad-Loan Lipstick”, December 09, 2008
Foreclosures: A new federal report shows that most bailed-out borrowers slip back into default within six months.
It seems agreed on all sides that bad home loans got us into our economic crisis. So, goes one argument, wouldn’t it make sense to modify those loans into good ones — that is, loans not in default? That would seem to get at the root cause of the trouble. Besides, help for struggling homeowners is good politics. Sounds like a plan.
The chairwoman of the FDIC and leading Democrats in Congress want to modify some 2 million high-risk loans by [cutting interest rates, lengthening terms, and even cutting the principle loan balance].
This week,the Comptroller of the Currency released data showing that … 53% of the mortgages modified by lenders end up back in default –usually within 6 months.
Were the loans so badly underwritten that borrowers simply could not afford them, even with reduced payments?
After al, they went to borrowers who put little or nothing down, and who lacked the credit history and documented income that lenders would have demanded in saner times.
These loans started to sour in good times. And easing up on their terms now won’t cure their fundamental flaws.
For these toxic loans, the best thing to do is to let them run their course into foreclosure, and work to contain the damage.
Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=313719048815277
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