Obama foreclosure plan Q&A
The answer is NO.
Here’s why:
1) The majority of the 4,000 houses currently being foreclosed in the city of Cleveland — and the 400+ still being filed on each month — are owned either by landlords, or by people who are really, truly poor (many of whom are unemployed), or by people who aren’t going to be helped by the opportunity to lower their payments to 31% of their incomes.
The city desperately needs to keep the current occupants in these homes (even if the foreclosure process goes forward) in order to prevent the stripping and gutting represented in the photograph above. There are a lot of ways this can happen — preserving tenant occupancy rights, converting foreclosed owners into tenants or lease-purchasers, pushing the banks to eat their losses on wildly over-appraised properties, various political and legal efforts to delay or block the foreclosure process, etc. All of these strategies need to be employed simultaneously — along with subsidized loan modifications for the minority of defaulting borrowers who can actually manage the resulting payments — if we’re going to have a prayer of significantly reducing the carnage in our neighborhoods.
2) Even for those Cleveland families who are in a position to take advantage of the Obama plan, leaving it up to the servicers is not going to work. The mortgage servicing industry has an absolutely horrible track record of helping its drowning customers reach dry land, except where experienced nonprofit counseling agencies have been able to intervene.
As ESOP director Mark Seifert told the PD, the financial incentives for lenders to cut deals under the program are significant but “the devil is in the details”. Borrowers are going to need the help of smart, experienced community counselors to make those incentives work for them. But nothing in the President’s proposal suggests that either the banks or the Feds will go out of their way to engage effective local organizations like ESOP in their new process.
3) New foreclosures are only part of “the foreclosure crisis” in cities like Cleveland and Detroit… the easier part. The really scary, destructive part is what Citigroup, Wells Fargo, Bank of America, JP Morgan, HSBC, etc. (and yes, HUD and Fannie Mae too) are doing with the houses after foreclosure.
A federal government that’s shovelling tens of billions of TARP dollars into these corporations’ balance sheets should be in a position to assert some influence over their REO and property management practices. To date the Obama Administration has shown zero interest in doing so.
So… no, the neighborhood destruction we see in the picture on the PD’s front page this morning is not going to stop because the President has decided to try bribing some mortgage servicers to modify some loans. It’s not even going to slow down very much.
But probably a modest number of our neighbors’ homes will be saved. Can’t complain about that.
February 20th, 2009 at 12:16 am
I’ll complain about that. Like you said the people who really deal with what’s in the pd are renters or low/fixed income types. The plan will help those who live out in stable neighborhoods and took the gamble on bad mortgages and lost. They perhaps more than anyone else should be helped last.
No federal politician… and I mean none, has shown any willingness to really address the problem with the banks. They like to talk a big game, but they all are failing us. Including our new president with this shining pile of… well i better restrain myself.
We need leadership to push the banks to do the responsible thing and fix the problems they are creating in our region. I can’t believe that we will ever see that, after all they’ve sold us out time and again.