The Baseline Scenario has an excellent run-down on the mechanics of what went wrong – months after we geared up to modify loans the fact is that delinquencies and foreclosures are rising.
There are various things going wrong here – banks are looking out for themselves, especially the servicing banks as opposed to the note holders; note holders are wary of going in to a modification because it might just be better to let the house go short sale/foreclosure and get the bird in the hand rather than two in the bush; the people who are running the modification show at the banks are not experienced and may not have proper underwriting skills (if this is the case, I nominate my friend who blogs under the name of Nevada Pundit as National Home Mortgage Underwriting Czar – he does actually know what he’s doing and it’d be a cool gig for him) – but, for me, the largest, single obstacle to this is the fact that we’re not admitting that not only have home values dropped, but that they’re not going to come back to what they were in 2005 – at least, not for 10 to 20 years (and my view is that in real terms, they never will). We need to reorganize America’s housing industry as it is undergoing national bankruptcy.
I’ve talked about this (well, by now it should be characterized as “yammered on endlessly”) – we need to find means of number-crunching the home values and figuring out, within 15% or so, what their real value is, and then applying that value to the mortgage. It’ll be hard, it’ll hurt – but it must be done as its the only way we can provide a floor underneath our home values and bring in a bit of price stability which will convince the millions of currently negative-equity home owners to stay in their home. Among all my friends – and there are a lot of them – I can only count two whom I know are probably certain to have positive-equity in their homes. One because she bought a long time ago and didn’t go in for serial refinances during the boom, the other because I’m pretty sure she bought it outright, or at least with 50%+ down. As long as we trundle along letting banks try to finesse themselves out of their mortgage jam, we’ll get nowhere – and foreclosures will continue to rise until a point is reached where major banks are, once again, faced with bankruptcy.
It is time to think anew and act anew – we can’t just sit here, Micawber-like, and hope that something turns up. Time for a bit of courage – and a bit of real hope and real change.
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