Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded.
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"There has been this policy push to use modifications as the tool of choice," said Michael Fratantoni, vice president of single-family-home research at the Mortgage Bankers Association. But "there is going to be this narrow slice of borrowers for which modifications is the right answer."
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Mark A. Calabria, director of financial-regulation studies at the Cato Institute, warned that political rhetoric is driving the policy discussion. "What we really need to do is have an honest debate about what are the magnitudes of people we really can help," he said.
There is much more in the excellent article. The point I want to emphasize is that the administration has taken the stance that loan modifications are the best solution to the housing bust. It is clear this is not the case. It is not often in the lenders best interest or the borrowers best interest. It would be much better to let the borrowers and lenders do what is in their financial best interest. If the administration really must interfere then designing a FHA program that allows people to buy soon after foreclosure with higher insurance premiums would be a way to keep the market from undershooting. Between that and a tax credit for all buyers instead of just FTHB there would be plenty of stimulus in the marketplace to keep the market going.
1 comment:
Interesting!
The loan modification process can be frustrating and confusing for many distressed homeowners. But you have to know what exactly is loan modification. A loan modification is a permanent change in one or more terms of a borrower's home loan.
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