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We’re all haunted by foreclosures

By Jay MacDonald · Bankrate.com
Monday, October 25, 2010
Posted: 10 am ET

This Halloween, the scariest haunted house on my block is the foreclosure. Actually, I have two of them down the street here in Florida. Nice homes, now shuttered, pools dry, slowly in decay. And yes, it scares me to ponder how these foreclosed homes might affect my home's value.

Add the recent foreclosure freeze to this witch's brew and this Halloween truly qualifies as the nightmare on Main Street where real estate is concerned.

The Center for Responsible Lending, or CRL, estimates the "spillover" cost of these haunted houses on our neighborhoods and communities could hit $1.9 trillion by 2012 as foreclosed homes slowly drain property values. The Urban Institute estimates that every foreclosure now causes $79,443 in collateral damage to neighbors, financial institutions, investors and local governments, in addition to the foreclosed homeowner themselves. As my fellow blogger Marcie Geffner observed, foreclosures are big business -- and not in a good way.

The sunny skies of early 2009, when the Making Home Affordable, or MHA, and Home Affordable Modification Program, or HAMP, were going to magically cleanse Mayberry of its foreclosure fungus, have darkened considerably with news of the "robosigner" revelations and perceived widespread malfeasance within the servicing industry.

My take? The federal programs, while well-intentioned, have not demonstrated an ability to keep people in their homes. The banks? Let's be charitable and say they're the weekend canoeist caught up in their first Cat 5 hurricane.

There may be a ray of hope in all of this gloom. It's called mandatory loss mitigation. It's being promoted by the CRL and others as a way to defibrillate this corpse by poking states to exercise their clout.

As the CRL notes, states have exclusive jurisdiction over foreclosure laws. As you may have heard, they're also in dire straits financially, in no small part due to what the housing bust has done to state revenues (Gov. Schwarzenegger on line two). So they've got a lot of skin in this game.

Mandatory loss mitigation would require servicers to weigh the investor's cost of foreclosure against the investor's anticipated cash flow from future modified mortgage payments. In other words, it would restore some transparency by establishing a standardized method of approving or denying mortgage loan modifications and give those denied a mod some objective information to use upon appeal.

Whatever one’s position on the subprime lending back-story, it’s clear that the rights of homeowners have been lost in this robo-rush to sweep big lending’s wild ride under the rug. Should we now trust those same forces to decide who deserves a reprieve from being tossed onto the streets?

Enforcing mandatory loss mitigation where it already exists and implementing it where it does not would be one significant step out of this dark wood.

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9 Comments
genos
December 14, 2010 at 12:33 am

people are loosing their homes and thus becoming homeless, and all you are worried about is the value of your home....what sad slop of a human being you are..

markell boat insurance
November 27, 2010 at 6:46 am

I have to hear exactly what Gabriela will change about this???

-Warm regards
Randolph

Jay MacDonald
November 05, 2010 at 11:38 am

Thanks for your comments, Jenny. My initial reaction is a hearty right on! We are all the unfortunate victims of temptation in this nightmare, even those of us who felt we had no part in its making, because we as a nation allowed our regulators to turn a blind eye to crazy lending practices, including equity stripping. As one associate recently put it, we stopped looking at our home as a savings account and started using it as a credit card. Obviously an unsustainable model. We're all paying now, more's the pity.

Jenny
November 05, 2010 at 11:16 am

I understand that people are up in arms over documentation with regards to foreclosures, and yes, it should be corrected, BUT it does not change the fact that they failed to make payments under a contract. They walked away from an obligation but somehow they are the victims of big banks-what a bunch of BS! If everyone paid their bills we wouldn't have this problem to begin with. You know how much you make-so you should know how much you can spend. Of course there are unmitigating circumstances beyond ones control-I understand that. The "housing bubble" is directly related to financial overextension- and foreclosures are the end result. I am angry that I can't get financing for a remodel, because the appraiser can't get comparables other than short sells, and foreclosures! My home that is supposed to be your one true asset is worth less than it cost to build in 1997. No consideration given to quality of build at all-none-zero. Land valuation at $0?!!! So if I go down the street I could offer someone with 50 acres $0 dollars because that is what it was appraised for??!!! Banks loan on appraisals-there is something terribly wrong with this scenario - You can't compare average homes values to foreclosed homes its not an accurate measurement of home value. And of course due to regulations/compliance banks can't loan over a certain LTV. This is why banks can't loan money the Feds are giving them. Its a nightmare lending circle. You can keep throwing money at banks if regs or certain guidelines aren't adjusted, it'll be a waste of time and a waste of my tax dollars.

JOSEPH PILEWSKY
November 02, 2010 at 10:20 am

WE GET NO SOCIAL SECURITY OR MEDICARE.
mY WIFE OF 64 YEARS MUsT LIVE OF HE SAINGS,SAVINS THAT STARTED AT $1PRE WEEK IN 1964.NOW FOR THE LAST 10 YEARS SHE COULD LIVE OFF THE INTREST BUT NOW!!!!WILL AT .25% PER YEAR THERE IS N WAY.
WHOs IDEAR WAS tHiS AND WHY ARE WE PAYyING FOR THE STUPID THAT BOUGHT FAR ABOVE THERE ABILITY TO PAY IN THE FIRST PLACE.IAM ALL FORE HELPING THOES THAT WORKED HARD,AND SPENT WISELY BUT LOST THERE JOBS, BECAUSE THE RITCH WANTED MORe AND MOVED FACTORIES OUT OF AMERICA.BY THE WAY YOUR HARD EARNED TAXES HELPED THEM MOVE THERE BUISNES OVER SEA!S WHOW, HOW SMART OUR GOVERNMENT IS?

AM
October 26, 2010 at 9:38 pm

I tend to agree with Carlo. The banks can't have it both ways: sloppy paperwork when they feel like it, but you the mortgagee are bound to the letter of the contract.

Maybe losing their assets to sloppy paperwork might teach a few more people to be careful.

And by the way, the value of your house has to go down, even without the foreclosures. Everyone can now almost say the words "housing bubble", but what that means in reality is your house was never ever worth as much as it's 2006 appraisal. People still extremely resistant to that personal connection to a financial bubble.

carlo gerace
October 26, 2010 at 8:50 am

Itr seems to me that if foreclosure paperwork is not correct,than it should be done over. Missing signatures,rubber stamped forms doesn't seem like due process.After all,these forms have to be filed in court and publuicly posted in the papers to be legal. The key word here is Legal,not conveinient.