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.
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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