The Lenders Are Hypocritical in their Efforts to Stem the Foreclosure Tide

May 19th, 2009

As the housing crisis worsens, despite innumerable public and private efforts, there is no doubt that the lenders or the banks are hypocritical in their efforts to stem the foreclosure tide. Publicly they are saying one thing but in reality they are not cooperating but placing hurdles. Insiders from the banking lobby admit this although for the sake of their career these critics choose to remain anonymous.

The banking lobby’s recent successful stand to prevent empowerment of bankruptcy judges to alter terms of loan has exposed the hollowness of their claims that they have done their best to prevent foreclosures Even pro-Republican businessman like Steven Presto who at one time headed HUD said, “The industry still has not stepped up to the volume of the problem.” The glaring example is the programme of Hope for Homeowners that the Bush administration had initiated. It had hoped that 400,000 families would benefit but in reality only 25 borrowers were able to refinance their loans.

Meanwhile the market continues to be glutted with more foreclosed houses rushing in. Recession is taking away jobs. No equity is left for borrowers to tap in to. There is a hue and cry among legislators and regulators for foreclosure moratoriums. Preston elaborated, “People are falling through the cracks. That’s bad for communities, bad for the individuals losing their homes, and bad for investors.”

From the first months of 2007 borrowers with sub-prime mortgages began to stumble and many housing experts had sent alarm bells ringing in Washington. Christopher Dodd (Democrat) had at that time suggested modification the exotic loans that started with low teaser rates that later rose to dizzy heights. Republicans strongly opposed the idea and Dodd did not have the muscle to enforce a bill dictating these terms. True to what all politicians do, he opted for a talking session – Home Preservation Summit.

Those who count in the banking industry, met at a powow on 18th April 2007 behind doors that were closed. Dodd had suggested that it would be prudent to renegotiate loan terms so that the borrowers continued to make some payments. If not then the payment flow would totally dry up. Each foreclosure proceeding costs the bank 50% of the value of the property – and that too based on the assumption that the unit can be resold.

Many big names in the banking world refused to accept that there was at all a foreclosure crisis.