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August 31, 2011
According to the New York Times, the President has finally turned his gaze back upon the foreclosure crisis and is now offering another solution: a new refinance initiative.
Of course this will mean nothing to the 25% of homeowners who owe more than their houses are worth. In fact, it's estimated that there are $700 billion in loans for mortgages with no equity. It's as far away from helping the vast majority of troubled borrowers as every other post-financial crisis program, particularly since mortgage rates are at record lows already. So why are we even considering this?
The answer is that it keeps the lending flowing at all costs and maintains what's left of home values. And touting "$85 billion in freed up consumer spending" will at least give the markets another brief bump even if that spending isn't realized.
But, above all, banks are getting dragged into more and more principal reductions that they want to avoid. They also know that if that if they let the housing market prices stablize on their own that they'll all be unemployed in record time. As their continuous bailouts and the necessary benefits of principal reductions become more and more glaringly obvious, the banks will have to keep fidgeting with interest rates to distract and pacify investors and consumers. This is the same dynamic that has been playing out in the Federal Reserve and the European Central Bank with devastating, large scale consequences for everyone but the banks.
And speaking of the glaringly obvious benefits of principal reductions, the consumer advocacy group "The New Bottom Line" has just released its report "The Win/Win Solution: How Fixing the Housing Crisis Will Create One Million Jobs.” While its argument isn't perfect, its certainly better than what the banks have been offering ad nauseaum for years: Only what will save themselves, and only at the cost of everyone else.
We need governance willing to implement programs like theirs - that actually seek to stop foreclosures at the cost of those that are mostly responsible for them - the banks. Until then, the only real reliable source of help against foreclosure is an experienced foreclosure defense law firm.