The AP reports that foreclosures have increased 24 percent in the first quarter of the year. It's disconcerting news, but not unexpected. HUD Secretary Shaun Donovan notes that this is in part due to second homes, speculators and vacant houses being seized, since none of those are eligible under the the administration's foreclosure mitigation plans. For my part, I'd push back against this paragraph:
Many borrowers and consumer groups claim the modifications offered by the lending industry don't do enough to help cash-strapped homeowners, despite more than a year of public prodding from regulators. Fewer than half of loan modifications made at the end of last year actually reduced borrowers' payments by more than 10 percent, data released last month show.
Basically, any loan modification that occurred before the administration released its standards in February is not a real modification at all -- as I reported in March, what the industry was offering to borrowers and what the government is demanding they do now are quite different beasts, so last year's data isn't really applicable to this year's plan. That doesn't mean, of course, that the program will be a success; the other big variable is lender participation, which is also questioned in the AP piece. Part of the problem there is that bankruptcy-modification legislation is still languishing in the Senate due to obstruction from lenders and moderate Democrats like Evan Bayh. Without giving bankruptcy judges the ability to forcibly modify primary home loans -- the only loans currently exempted from their attentions -- the administration lacks a credible stick to force mortgage servicers and investors to give borrowers a fair shake. We'll have more on the bankruptcy legislation for you next week when Congress returns to session.
The other question on lenders is, how will the administration require TARP funding recipients to participate in this program? Details have yet to emerge on the mechanisms for ensuring these financial institutions modify their loans to troubled borrowers.
One last thought: The administration's 90-day moratorium on foreclosures from Fannie Mae and Freddie Mac expired two weeks ago. Given the time needed to roll out the foreclosure-mitigation plan, the moratorium should be extended another 90-days with the the same rental agreements given to threatened borrowers as before. That will give further time for the Senate to (hopefully) pass the bankruptcy-loan modification bill and for the administration to get the Making Home Affordable plan more seriously into play.
-- Tim Fernholz
