Congressional Democrats want to hold back a rising tide of foreclosures, but they're being told that there's not much they can do.
It wouldn't hurt to ask the right people. On April
17, the House Financial Services Committee held a hearing called, "Possible
responses to rising mortgage foreclosures." Of a dozen witnesses, none were
mortgage servicers -- the people whose companies collect mortgage payments, deal
with delinquent debtors and initiate foreclosures. The committee didn't call any
Instead, the committee called a regulator,
the federal housing commissioner, the heads of Fannie Mae and Freddie Mac, several
nonprofits, and two banking and securities lobbyists. This broad array of people
agreed on one thing: This ain't your grandfather's mortgage industry. The business
is so extraordinarily complex now, so decentralized, that it's hard to reduce
foreclosures, no matter how fervently you wish to do so.
on the rise
According to the Mortgage Bankers Association,
119 out of every 10,000 home loans were at some
step in the foreclosure process at the end of
last year. That's an increase over previous quarters,
but not a record. On the other hand, 54 out of
every 10,000 home loans entered the foreclosure
process during the last three months of 2006.
That is a record -- the previous record, at the
end of a recession in 2002, had been 50 new foreclosures
for every 10,000 loans.
The high number of new foreclosures hints that the
foreclosure problem will get worse, and members of Congress are looking for fixes.
are no easy market solutions," David Berenbaum, executive vice president
of the National Community Reinvestment Coalition, told the committee. He suggested
a government solution instead: a mandated temporary halt in foreclosures. Too
many law firms and mortgage servicers rush consumers into foreclosure without
assessing their ability refinance or catch up on their payments, he said.
would raise questions
There were no servicers at the witness table
to critique the notion of a national foreclosure freeze. A mortgage servicer might
have asked who would pay the accumulated interest payments during a moratorium.
For example, if a six-month halt to all foreclosures merely delayed a consumer's
foreclosure for six months instead of preventing it, that homeowner would rack
up seven months of unpaid interest charges instead of one month. Who would be
responsible for paying the extra amount: the servicer, the investors who own the
loan, the borrower? If it's the latter, is that fair? Or would the taxpayers pick
up the tab?
Proponents of a foreclosure moratorium say it would
give borrowers time to refinance if possible, and would give servicers time to
modify loans. Mortgages
can be modified in different ways: The interest rate can be reduced, payments
can be suspended until the borrower finds a job, or missed payments can be caught
up over time or tacked onto the end of the loan.
chairman of the Federal Deposit Insurance Corp., explained that in days of yore,
"lenders often worked with troubled borrowers to restructure their loans
or find other ways to avoid foreclosure. Today, the growth of securitization in
the subprime mortgage market has complicated the ability of interested parties
to apply flexibility and creativity to assist borrowers facing difficulty."