Banks are Stoking the Flames of the Foreclosure Crisis

May 22nd, 2009

The banks are actively stoking the flames of the foreclosure crisis and placing hurdles before efforts being made to keep the people in their homes. Unless the foreclosure tide subsides none of even the most extravagant rescue efforts launched by the government at all levels and by private bodies will have any impact on the economic health of the country.

Since 2006 there have been about 1 million foreclosures and during the next four years another 5.9 million will fall into its net. Thus the Obama plans despite its jumbo size cannot do much on its own. The lenders must be ready to accept considerable losses and work out some way by which the borrowers can limp along making some mortgage payments during these recession times.

But so far the banking lobby has remained obdurate and lacking in foresight. They have actively put barriers in the way of solutions by means of loan modifications. Currently they are huddled together to plan out a strategy to trim down any attempts at empowerment of bankruptcy judges to alter terms of the mortgage. It seems they have succeeded.

The strategy of the banking industry right through has been to play for time and parry regulations. One servicer under the cloak of anonymity told Business Week, “We were like the Dutch boy with his finger in the dike.” They are fearful of talking out aloud because their careers are at stake. Many admit that banks like Citigroup, Bank of America, JPMorgan Chase would have been in a better position if they had faced up to the reality of the situation instead of unrealistically biding their time for the housing climate to change like magic.

Publicly the financial bodies claim that they have done all they can to prevent foreclosures. Regarding the issue about cramdown or allowing bankruptcy judges to alter mortgage terms their contention is that this would reward those borrowers who had been irresponsible and also increase in higher borrowing expenses. The banking group is trying to narrow down the bankruptcy clause as far as possible.

Despite these claims it is clear that the industry has done nothing to mitigate the crisis but has rather fueled flames to worsen it by sheer obduracy and lack of prescience. Statistics speaks of this. Even figures released by pro-industry entities concede the harsh reality that bankers have dragged their feet on the modification issue.

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Banks are Stoking the Flames of the Foreclosure Crisis

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