When Will the Foreclosure Madness End?

Would you believe it if I told you that over the last ten months, homeowners and lending institutions across the nation have partnered in the largest and most recognized effort in history to save homes from foreclosure?  I didn’t think you would. Neither do I.

People who face mortgage default and foreclosure would find such a statement especially unbelievable.   The fact is, most people who have entered this arena find themselves incredibly frustrated by the way banks are responding to their pleas for help. Borrowers, who spend hours collecting documents, digging out statements, assembling files and writing hardship letters more often than not find themselves discussing their woes with outsourced bank “representatives” located in foreign countries, or with bank loan center counselors who have no e-mail addresses, no last names and no phone numbers that reach them at their desks. The banks make the process as slow and cumbersome, and then yield little, if anything, in results.

HAMP Program

To urge banks to be more “enthusiastic” about making loan modifications, the Federal Government has enabled its Treasury Department to develop an enormous pile of rules and regulations known as the HAMP program.  National lending institutions and mortgage servicers have signed up to comply with these concepts.

So, why are we still suffering from foreclosure madness?  Where are the solutions HAMP promises and why are they not being followed?   Richard Thaler offered readers of his Economic View column in the NY Times a very simple, logical solution.  He agrees that "Lenders have been reluctant to renegotiate mortgages, and government programs to stimulate renegotiation have not gained much traction."

An Economic Alternative to Foreclosure

But what Thaler suggests is a vastly different approach to solve the foreclosure dilemma, and it doesn’t require the usual reams of regulations to implement.  His plan agrees with the presiding economic theories that foreclosures are bad business for our neighborhoods, and create instability and chaos for both banks and borrowers. Thaler says, "The bank would be required to reduce the mortgage by the average price reductions of homes in the neighborhood. In return, it would get 50 percent of the average gain in neighborhood prices - if there is one - when the house is eventually sold".

Sounds great, but is it too simple to work??

Of course, lenders and their supporters will cry that the hunted have out-foxed the hunter; that the homeowners who have defaulted on their mortgages are being given a free pass, and are being paid for their failures. But if we want to resolve the mortgage problem, we will just have to cope with such criticism and shoulder these moral dilemmas for our neighbors and friends.

Moreover, we must continue to offer hope and solutions to the millions of Americans who are now facing such problems, and to our national lending institutions who are undeniably our partners in recovery.  Our local courts must enable the present legislation to hammer out foreclosure settlements and attorneys must educate their friends and clients that there are real and definite paths to follow after the process servers come with the foreclosure summons.

We must aggressively reach out to those in need of creating new ideas and developing new approaches to handle a foreclosure, and we must begin to imagine that homeownership can be restored.  Credit scores must once again become a meaningful statistic. People must willingly and with great expectations view their scores on sites such as CreditKarma.com or Quizzle.com and other credit sites with a feeling of pride.

Most of the people who visit our offices want to save their homes.  Let’s hope that many more will choose to do so and restore confidence so that banks can do what they do best. Let us hope we can once again and in good faith and conscience ask our lenders to rebuild our neighborhoods with loans, jobs and homes.