Foreclosure Pressure Beginning To Bend Lenders And Their Servicers

December 10th, 2007

Twin Cities Habitat for Humanity is a non-profit organization working round the clock to bring back people from the precipice of the foreclosure fall. More and more cases are coming up in which the mortgage debt is being reconsidered. In one case the lender was obliging enough to slash off $21,000 from the debt without a murmur.

Till recently servicers and lenders have been throwing the ball back and forth between them with the former saying that their hands are tied, they cannot do anything about modifying loans; rather there was the fear that they would be sued by lenders for stepping out of turn.

Perhaps this argument would have held in normal times. But today 2.2 million Americans are about to lose their houses in the coming year because of foreclosures. The rot has started from the granting of sub-prime mortgages with teaser rates backed by predatory lending. Unwary people with little or no financial education, trying to improve their socio-economic status were made to swallow these loans. With high penalty clauses regarding closing one mortgage to shift to another made modification unaffordable.

But the sheer number of foreclosures affecting all, and not just the lenders, has made the politicians sit up. It is a question of vote banks. The bigwigs in finance and economy are feeling the hard pinch of cash crunch as more houses are knocked down by foreclosures and sitting idle with no buyers. Criminals are now ruling neighbourhoods. Tax kitty is getting slim – who will pay house taxes when there are no regular owners? It is a no go situation for all. The result is that servicers are talking on a low key recently. President Bush had appealed to them last summer to modify loans. The Congress has been growling about toughening mortgage laws. The American Securitization Forum with 350 representatives from investor, loan servicers and insurance groups recently made statements encouraging more modifications. According to them two out of every three services have discretionary powers without restrictions.

Habitat for Habitat is optimistic especially since recently 20% clients are modifying loans. This has increased their workload from 152 house owners in 20006 to 206 already this year.

But all are not happy with the slow pace where only few individuals are benefiting. It is not scratching the surface of the problem. Only 1% loans have been modified.

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One Response to “ Foreclosure Pressure Beginning To Bend Lenders And Their Servicers ”

Nick
December 10th, 2007 at 3:44 pm

It’s good that lenders are starting to wake up and realize that taking slightly less profit by modifying a loan will help them in the long run. Most of these properties are overvalued to begin with, and they wouldn’t sell at auction for nearly enough to pay off the loan, and the lenders would have to take quite a bit less to sell them on the open market.

So, if the homeowners want to stay there, and are willing to keep making payments on an overvalued home, knowing that they bought the house to live in for the long term, then it’s in everyone’s best interest to find some common ground.

1% of loans being modified isn’t going to have a noticeable effect, though, but hopefully more lenders will be willing to negotiate, the longer the problem lasts and the deeper their losses become.

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