NY Times Editorial, November 5, 2010.
In the most recent mortgage mess, the Obama administration has — oddly and disturbingly — been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order.
Phyllis Caldwell, chief of the Treasury Department’s Homeownership Preservation Office, recently told a Congressional panel that the administration was making progress on preventing foreclosures — a claim disputed by some panelists. She also said that “an important part of assuring long-term stability in the market is to enable properties to be resold to families who can afford to purchase them.”
The trouble with her statements, which echo those of other officials, is that they gloss over the question of whether families who were foreclosed upon were given a fair shot at keeping their homes.
Some Americans, no matter what, cannot afford to keep their house. But mass foreclosures are a huge drain on the economy, crushing home values for everyone. In September, 347,420 homeowners received a foreclosure notice, up nearly 3 percent from the previous month, according to data from RealtyTrac, a marketer of foreclosed properties. Before resorting to foreclosures, banks need to make a much more serious, transparent and timely effort to work out new loan terms.
We assume the White House’s stance is an attempt to keep the markets calm in the face of ongoing revelations of chaos in the foreclosure process. That would make sense if the White House had a more aggressive policy to prevent foreclosures. But in a year and a half, its signature antiforeclosure effort has permanently modified fewer than 500,000 loans. That’s far short of the need — 4.2 million loans are now in or near foreclosure.
It comes down to this: banks are paid incentives to modify mortgages so owners can hold on to their homes, but other incentives can trump timely modifications or make foreclosures look like a better financial deal for the banks. Dragging out a delinquency, for example, can allow banks to postpone acknowledging losses, while a foreclosure sale allows them to collect late fees and other charges applied to delinquent loans.
It doesn’t take a big leap of logic to conclude that homes are being lost that could be saved, but for the banks’ reluctance to rework bad loans. The Obama administration needs to do more.
