Preventing Foreclosures, Stabilizing Communities
By Matt Wallace of Portland, Oregon. Matt is consumer advocate with OSPIRG, a statewide citizen-based, nonprofit, nonpartisan public interest advocacy organization.
By now, the story of the current deep recession and how we got here is a familiar one. Lax regulation of mortgage lending, combined with new and dangerous investment vehicles from Wall Street, helped fuel a housing bubble and a nationwide wave of bad loans that has brought down our financial system and our economy.
We know now that while Oregon may have been more stable than other states when the crisis began, we are now at the forefront of a foreclosure wave that is washing over the country. Last fall more than 32,000 Oregonians were late on their mortgages Oregon is in the top ten states for foreclosures this year. And it's not just the struggling homeowners who are affected. Without action, Oregonians will lose $2.5 billion in home equity due just to nearby foreclosures this year. That's a big hit to what is many families' biggest source of savings.
Frankly, there's a lot of blame to go around for the mortgage meltdown, but there are a couple of things everyone can agree on. The problem is getting worse, and we should do everything we can here in Oregon to help stop the bleeding.
Perhaps the biggest barrier to preventing more unnecessary foreclosures is the difficulty that consumers have in even getting a conversation to take place with their loan servicers. Consumers in all walks of life have simply been unable to get someone on the line with the authority to negotiate. Even members of Congress, calling on behalf of constituents, have spent hours on hold to no avail.
This is where the Oregon legislature has the opportunity to make a real difference, by changing the foreclosure process to ensure that discussions about real workout options to take place. Senate Bill 628-6, sponsored by Senator Bonamici and Representative Holvey, works by giving borrowers who want to try to remain in their homes the opportunity to discuss loan modifications that would lower monthly payments, and save money for investors compared to foreclosure.
This means that upon the borrower's request, the homeowner and the lender will come to the table with a neutral third party and consider possible options for loan modification using the same level playing field modification guidelines employed by President Obama's Making Home Affordable plan. Incidentally, employing these loan modification guidelines is one more incentive for servicers and lenders to participate in the plan, which funds about $50 billion in payments for servicers and borrowers who make successful loan mods.
Seems like a win win right? Unfortunately, some financial industry lobbyists don't seem to think so. In a set of last minute amendments, they propose an alternative to setting up a process for real discussions to take place. Their answer? Add a few lines to the current foreclosure notice, providing the web address for the voluntary federal program, and advising the borrower that calling their lender and trustee (the legal entity that actually performs the foreclosure sale) is a good idea, and that, if they're lucky, the servicer might be willing to modify the loan. You might as well replace the bill with a blank sheet of paper.
The continuing foreclosure crisis, and shortage of workable loan modifications, is not due to a lack of phone numbers.
This is the legislature's opportunity to take real, effective action on the foreclosure crisis, to the benefit of all Oregonians. Thanks to the leadership of consumer champions like Senator Bonamici, we've got a great shot. Let's all hope we take it.
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April 24, 2009
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Apr 24, '09
It is estimated that Obama's plan could benefit 8 to 9 million homeowners from the new modification procedures. So how do you know you qualify for the Mortgage Modification? Check the website http://obamamortgage2009.blogspot.com/ to see if you qualify. I was also in trouble and I am glad I did check it before I talk to my mortgage company and it helped - John Mayer, California
Apr 25, '09
Without action, Oregonians will lose $2.5 billion in home equity due just to nearby foreclosures this year.
The total home equity value in Oregon should fall substantially. Home values were wildly inflated here over the past few years, especially when one accounts for the relatively low household income levels in Oregon.
Our overly restrictive land use laws cause housing prices to be artifically high to begin with. The additional price pressure caused by the housing bubble led to unsustainably high prices not likely to be seen again for many years.
We should be rooting for home values to return to more supportable levels so that more people can qualify for home loans.
Apr 26, '09
Matt Wallace:
Lax regulation of mortgage lending....
Bob T:
You mean a regulation was needed to stop banks from making loans to unqualified applicants who were likely to create monthly cash flow problems for the banks by not being able to pay? That's funny -- if it were that way all along there would have been no need for scummy lawyer politicians like Andy Cuomo et al. to invent a new kind of "discrimination" called red-lining.
It wouldn't matter to people like you -- no matter the cause for anything is, you'll just blame it on "de-regulation".
Bob Tiernan Portland
12:00 p.m.
Apr 26, '09
Bob T: no one will/should take you seriously if you claim that discriminatory policies such as redlining are fictional. Redlining has been an exceptionally well documented policy that was at the core of insurance and housing discrimination for many, many decades.
Apr 26, '09
"You mean a regulation was needed to stop banks from making loans to unqualified applicants who were likely to create monthly cash flow problems for the banks by not being able to pay? "
Question for Bob T: You know for a fact that every lending institution which had potential borrowers with high enough income to qualify (say, 2 working professionals) and a down payment of 20% gave those potential borrowers a traditional, fixed rate mortgage and didn't try to talk them into one of those idiotic "stated income " loans or an interest only loan, or some other fancy product where the sales commission was larger than a boring old fixed rate old fashioned mortgage?
If you want to believe in "let the buyer beware", so be it. But don't assume every sales person in every lending institution was as honest as the day is long and needed no supervision or regulation.
One of the problems of current political debate is that people make unproven assumptions as a means of persuasion and then wonder why the assumptions are questioned.
Apr 26, '09
Dan Petegorski:
Bob T: no one will/should take you seriously if you claim that discriminatory policies such as redlining are fictional. Redlining has been an exceptionally well documented policy that was at the core of insurance and housing discrimination for many, many decades.
Bob T:
Was the solution to consider it one monolithic problem to be "cured" by requiring riskier loan practices? Those who actually qualified by having both the income level and funds for a down-payment but who were denied just the same were/are not the bad risk individuals I refer to.
Bob Tiernan Portland
Apr 26, '09
I am still waiting for Oregon to figure out that the excessive, obscene valuations of real estate here must end. Have you looked at apartments recently? Seen the terrible middens you can get for nine hundred a month? Wake up POrtland in particular. An honest living ain't what local landlords are making. We need to gear pricing to a realistic fix on the INCOME of the market here! The prices are not shifting yet, despite being a year into this problem. Oregon/PDX hanging onto inflated values. I really hope we can see that change.
6:17 p.m.
Apr 26, '09
Bob T - again, you're arguing from myth/ideology not fact. 2006 data showed that just 1 of the top 25 sub-prime lenders was subject to the Community Reinvestment Act. Your sacred market, not government regulation, "required" risky loan practices.
Apr 26, '09
Thanks, Daniel Pete. It's honestly and truly not the unwashed and unclean poor who brought this country finally and absolutely to her knees.
Really.
Apr 27, '09
Dan Petegorsky:
Your sacred market, not government regulation, "required" risky loan practices.
Bob T:
The market required no such thing.
Bob Tiernan Portland
6:19 a.m.
Apr 28, '09
"The market required no such thing."
You'll note that I put the "required" in quotations - my straightforward point being that the explosion of subprime lending was the result of market forces, not regulatory requirements.
Apr 28, '09
There really isn't much of a problem here other than that fact that a bunch of stupid people signed their names to loans that they couldn't afford. Personally I signed up for a ARM last time I bought a house and I'm glad I did. Just got the paperwork the other day and that loan has reset to 2.8%. The monthly payment is now lower than my gas bill. Yet the usual clowns are running around screaming about the dangers of ARMs and other variable rate loans. No problem here, people just need to have some basic sense when they sign for stuff.
11:13 a.m.
Apr 28, '09
"There really isn't much of a problem here other than that fact that a bunch of stupid people signed their names to loans that they couldn't afford."
Before you make such flippant statements you might at least want to wait until those investigating criminal charges in the subprime crisis weigh in - the WAMU grand jury, for example.
Then again, why wait? We already know from coast to coast plea deals that mortgage brokers were engaged in criminal fraud on a grand scale.
How grand? Here's a description of just one of these schemes:
<h2>And, of course, we’re just talking here about the mortgage brokers midway up the food chain, before even getting into the securitization of the loans, credit default swaps, etc., all of which may actually have been legal. But I guess stupid is as stupid does, right?</h2>