Foreclosure Crisis - Bush’s Plans Against Foreclosures Futile

January 3rd, 2008

The urgent call of the hour in cities like Detroit is to tackle slumlords and bring down deserted houses. Bush made loud noises about tackling foreclosures but the medicine he has prescribed in consultation with the mortgage kings will be of little help on the actual battlefield in the jumbo cities – especially Detroit.

The plan seems more like a protective suit for the President guarding him against missiles thrown by critics. It prevents steps being taken by the Congress that would rein in the mortgage industry, modify the sub-prime mortgages and provide more protection to the house owners from foreclosures.

The President has turned a Nelson’s eye on the root cause of the crisis – the seductive lending practices of the mortgage firms duping gullible borrowers with smart talk. Little is there in the plan to tackle the problem of abandoned houses and the collapse of the real estate market in the cities that is dragging down healthy neighbourhoods with it. The pact seems to have made the mortgage industry the guardians of the public welfare. Actually it is tilted more in favour of the industry than the general public.

There are no pressures on the lenders – the whole scheme is voluntary. It is up to the lenders to implement it or not. Some of the servicers are afraid that the original lenders or investors will sue them if they modify loans without the green signal from the law. They claim that the have been appointed only to collect the dues.

There are other questionable gaps. It does not take into consideration loans made previous to 2005 or those houses whose market worth is less than the loan amount. The borrowers who are not up to date in their payment are left out in the cold while those whose credit ratings have improved are expected to pay at absurdly high rates.

Experts are of the strong opinion that less than 10% of the borrowers in the ARM zone will benefit. The outcome will be that that majority of the at-risk borrowers will be evicted in Detroit within the next 30 months. They will leave behind a trail of abandoned houses with it attendant evils of crime and decay.

Bush is weakly hoping that the market will absorb the problem. Speculators will descend in hordes, buy up, give a cosmetic touch and fleece the public further by offering these units as rentals.