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QUESTIONS AND ANSWERS ON THE FORECLOSURE CRISIS
Last week we talked about the continuing foreclosure crisis and how it
is undermining a recovery in the real estate market. I suggested more
loan modifications, expanding common sense financing to investors, and
streamlining the rehab process for major repairs. Here are some
follow-up questions on those topics:
Q: Why do we need more loan modifications when we already have a major
effort underway called "Home Affordable Modification Plan"?
A: The HAMP program is simply not having the impact that the government
had hoped. According to recent statistics, only 116,000 homeowners have
received permanent modifications in the past year, about 11 percent of
the number who have actually applied. In the meantime, lenders continue
to foreclose on borrowers, many of whom could afford to make some level
of payment, but lose everything because they are temporarily out of
work.
In addition, that particular program is targeted at a specific group of
borrowers, at least 60 days behind on payments. If you are still current
on your loan but having difficulty making payments, you don't qualify.
It also disqualifies anyone who no longer lives in the property.
A broader, more inclusive program could help many more homeowners while
they still have a chance of continued ownership. It could also prevent
more abandoned properties in our neighborhoods.
Q: You suggested making "common sense" financing available to investors.
What does that mean?
A: Because home lenders have been burned by massive loan fraud in recent
years, they have over-reacted by eliminating most investor financing
programs. In addition, because many banks have experienced losses on
construction projects, the FDIC is discouraging all loans secured by
real estate.
As a result, investors are staying out of this market in droves. And
investors are the most likely purchasers of bank-owned homes. It's
simply unrealistic to expect a first-time home buyer to purchase a house
in need of major repairs. They have neither the means nor the skill for
the task, and they certainly don't have the desire.
By "common sense," I meant that these loans should have strict
underwriting requirements and require a substantial down payment. In
that way, the new borrower is motivated to finish the repairs and return
the house to market.
Q: Why would we want to make exceptions to lead based paint regulations
or water conservation requirements? Aren't these important societal
goals?
A: Lead-based paint contamination is an extremely serious problem that
must be addressed as a public health issue. We have made great progress
in just the past few years in terms of public awareness and education.
Likewise, water conservation is a vital necessity, especially in the
metro Atlanta area.
But our nation is currently in the grip of a serious financial
recession, and the real estate industry is contributing to the problem.
I am suggesting that we might want to rethink the timing of some of the
more aggressive measures we have slated for introduction into our laws
and regulations. A delay of 12 months might encourage the recovery in a
tangible way, and the education element could continue during that time.
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