Callahan’s Cleveland Diary

In the email this morning, from Lou Tisler of Neighborhood Housing Services (NHSGC):

NHSGC had the honor of having an editor from The Economist spend the day in our offices meeting with NHSGC staff, Councilman Tony Brancatelli (Cleveland), Mayor Michael Ciaravino (Maple Heights) and Erin Angell from NeighborWorks® America. The article has highlights and lowlights on the foreclosure crisis, as well as opinions expressed by The Economist. Two such opinions, that mortgage assistance is a “weakness of politicians” and a “scheme”, and “that in many cases preventing foreclosures is a bad idea” are two opinions that are not shared by NHSGC. We believe that helping residents who have had a life crisis or a trigger event, that will have the financial wherewithal to stay in the home, as well as those who have been preyed upon and have encountered mortgage fraud, should have their foreclosures prevented. The Ohio Department of Development and the Ohio Housing Finance Agency have displayed forward thinking in developing new tools for agencies such as NHSGC to combat the foreclosure crisis. There is no one silver bullet, and working together with ODOD, OHFA and our other partners across the city/county/state/country, we will be able to address this crisis.

Below is the link to The Economist article:

https://www.economist.com/opinion/displaystory.cfm?story_id=9905451

Actually the article is pretty good, and the opinions Lou disagrees with don’t really seem all that disagreeable, aside from the cheap snarkiness about “politicians”:

The state will put up to $3,000 towards mortgage refinancing. Some 250 people have been helped thus far; the goal is 1,500. But with 150,000 Ohio mortgages resetting over the next 12 months, the bail-out is a drop in the bucket. The only type of rescue that would prevent a surge in foreclosures would be a huge federal bailout which no politicians (as yet) are contemplating.

And the hard truth is that in many cases preventing foreclosure is a bad idea. Not all defaulting borrowers are suffering families. In the bubbliest property markets, many mortgages are held by investors, who were speculating on higher prices. In Florida, a quarter of all defaulting loans are held by non-residents. Even in Cleveland, many subprime borrowers are in houses that they cannot—and will not be able to—afford. Foreclosure is, unfortunately, the right outcome for perhaps half of America’s problem mortgages.

These observations are not all that different from what I’ve heard in the past few weeks from local anti-foreclosure activists. It’s widely understood that fast, efficient foreclosures are in everyone’s interest in the thousands of cases where the house is vacant, the borrower is a shady speculator, etc. What everyone including NHS is working to avert is foreclosures in which people actually lose their homes.

What the Economist writers do seem to have missed is the vitally important point that renegotiation in these cases doesn’t necessarily depend on government “bailouts”.

There are deals which simply restructure the payment terms to accommodate a borrower’s ability to pay. There are companies (like Litton, I hear) which are agreeing to defer ARMS resets, as ESOP and other community groups are demanding of Countrywide and Wells Fargo. There are deals in which the lender agrees to eat some of the outstanding principal, in tacit recognition that the original appraisal (and thus the sale price) was fraudulently high. These aren’t public bailouts — they’re deals that recognize the enlightened self-interests of both lenders (to avoid foreclosure costs and big capital losses) and borrowers (to do everything they can to keep their homes).

The most important government contribution to these kinds of workout deals is probably the public operating support that enables agencies like NHS and ESOP to pay staffers to help broker them. The most important thing public policy can do to make many, many more of these workouts happen, aside from more support for the agencies, is to systematically “incentivize” the industry toward real negotiation (on a mass basis if possible) and away from foreclosure — through regulation, judicial practice, housing code enforcement, prosecution where it’s called for, and high-profile jawboning… along with some subsidy when it’s necessary.

But even with this rather large oversight, I recommend the Economist article. Thanks for the leads-up, Lou. Don’t forget us now that you’re you’re an international media magnet.

(NTIC’s Save the American Dream blog has some great back-and-forth with Countrywide, Wells Fargo, etc. about the issues raised in their Cleveland press conference last week.)

This entry was posted on Friday, October 5th, 2007 at 7:08 am and is filed under Foreclosure crisis, Poor Cleveland, Shrinking city. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.