While Foreclosures Burn Neros Fiddle in Washington
July 2nd, 2009
While foreclosures burn and surge ahead the many Neros in Washington do nothing but fiddle – they talk and talk. In the last week of April a dozen Democrats joined hands with 39 Republicans in the Senate to stop the passage of an amendment vote that would have given bankruptcy judges the power to alter the terms of mortgages that were in trouble. Obama had been one of the loudest to campaign for this provision. It had been a prominent part of his anti-foreclosure plan. The clause would have been a powerful stick to prod the lenders to sit down to serious business to modify or refinance soured loans rather. They would have preferred their own initiative rather than allowing judges to cancel and rewrite
But when it came to the crunch – to arise to the occasion and flash a red eye of anger at the banking lobby manipulating the senators, the White House did not even whimper. It did nothing. No statement of regret was issued even.
So it is back to square one – the carrots sans the stick. The entire Obama plan now depends on the mercy of the lenders to do or not to do anything. The plan as it now stands is well drawn up with ample provision for incentives for servicers who successfully rework the loans. In some instances even the investors were offered cash incentives if they gave the green signal to modifications. But without empowering judges, if this will be enough to make the lenders bend, is something yet to be seen.
The estimates by the administration are that this provision will stop about three to four million foreclosures. But it will be many months before full data is collected and results analyzed. In the past the voluntary method had totally failed. In March there was a sharp increase of foreclosures with the numbers touching 290,000 to 341,000.
There are about 14 million borrowers who have gone underwater – the value of their homes being less than the loan amount. Without a prod there is no possibility that the lenders will touch these loans. But if bankruptcy judges had been empowered these foreclosure victims would have greatly benefited. Their principal would have been reduced to realistic levels enabling them to rebuild their equity. Generally, in typical cases the monthly payments are reduced but not the principal amount. This causes the borrower to re-default. Without equity the borrower has nothing to fall back on.
- Fewer Foreclosures Among Low-cost Brooklyn Homes
- Bank of America is a Lagging Behind in Loan Modifications to Prevent Foreclosures
- The Aftermath of the Housing Boom is Followed by Foreclosure Doom in Homestead
- Lenders Being Legally Challenged for Activating Predatory Lending
- Foreclosures Have Made Life for CEO’s Expensive and Fraught With Fear
- With Foreclosures and Unemployment Continuing it is Doubtful if Recession is Over
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