Its clear that the Government programs will save only a
small percentage of the homes facing payment difficulties. The Fed is expected
to lower rates again this month, probably another 1/2 point. Even before this
move Freddie Mac reports 30 year rates averaged 5.69 the lowest level in 2 1/2
years.
The immediate conclusion is that this will help the
homeowner in trouble because now that owner can refinance into a lower payment
and stay in the home. Not necessarily so, according to the Mortgage Bankers
Association, although refi applications have surged but many will be rejected
due to higher lending standards. Owners with a low credit score or little
equity in the property are finding that lenders are not refinancing at their
lowest rates.
The lender can help keep homes off the market by not forcing
the foreclosure. Its of no benefit to the lender to sell at fire sale prices or
to take back the property and manage it. According to Bob Caruso, Bank of
America Corp.'s national servicing executive via the Wall Street Journal:
"More often now than ever before we are writing off the loan" when
borrowers fall behind on home-equity payments. "The customer still owes
the money, but it is no longer an asset on our books." That doesn't let
the borrower off the hook: The lender keeps the lien in place, however, in the
hopes that it will receive some money when the property is sold.
The other method is too simply change the terms of the
mortgage. Lenders say they worked on loan modification and repayment plans for
more than 235,000 borrowers that quarter alone, reports the Mortgage Bankers
Association.
We think these are grand strategies because:
It
allows an owner to stay in the home
Keeping
property off the markets avoiding a glut that can only deepen the correction
Takes
a non performing asset off the lenders books, likely strengthening the
companies asset base
Allowing
lenders to wait out the crises and hope to be repaid at a later date.
Keeps
cash flowing into the company, even if its at a reduced rate.
We hope that more lenders see the value of these approaches,
accept their role in the crises and take it on the chin along with the homeowner.
This would go a long way towards defusing out the problem and spreading the
pain in a manner consistent with our system. Lets not count on the bail out.
