How to Stem the Foreclosure Tide

TODAY IS WEDNESDAY, MAY 16, 2012

Listen to this show

Download

Wednesday, December 9, 2009 at 10:00 AM EDT

How to Stem the Foreclosure Tide

A home for sale in Mayfield Hts., Ohio, in October. (AP)

The Great Recession started with the subprime lending crisis that rocked Wall Street and countless little streets across the country.

Now, the big banks are bailed out, settling down and counting bonuses. But the streets people live on are still being pummeled by home foreclosures. Millions of them. And maybe 13 million more to come, as Americans lose jobs and paychecks.

Intervention to ease that crisis has largely failed. And for that, the whole economy may still pay a price.

This hour, On Point: the unfinished foreclosure crisis, and what to do about it.

You can join the conversation. Tell us what you think — here on this page, on Twitter, and on Facebook.

Guests:

Joining us from New York is Floyd Norris, chief financial correspondent at The New York Times. He wrote recently about why so many home loan modifications are failing.

From Miami we’re joined by Arden Shank, executive director and president of Neighborhood Housing Services of South Florida.

Joining us from New Haven, Conn., is John Geanakoplos, professor of economics at Yale University.

And from Washington, we’re joined by Elizabeth Warren, professor at Harvard Law School and chair of the Congressional Oversight Panel charged with monitoring the Troubled Asset Relief Program, or TARP.

More links:

The Congressional Oversight Panel’s year-end report, “Taking Stock: What Has the Troubled Asset Relief Program Achieved?” was released today. Its analysis concludes that “the foreclosure crisis continues to grow,” and finds that “TARP’s foreclosure mitigation programs have not yet achieved the scope, scale, and permanence necessary to address the crisis.”

http://fibrowitch.blogspot.com/ Jan Dumas

Well my medical bills have caused me to loose my home. I found a company in Lynn DMS Investments,Inc who made an offer on my house. They made the offer on my property contingent on it being occupied. And they will rent it back to me at a price I can afford.

This would have never happened to me if my medical bills could have been kept in check. But my insurance company was allowed to dump me when I got to expensive. And now I have a preexisting condition and will never get anything but government disability again. Sadly, my medical bills average 15,000 a year, my annual income on disability is only 32,000.
Steve T

They should have given the money to the people in trouble, instead they give it to the very leaches that started this mess. The money sucking leaches will not stop sucking us dry… It’s what they do!
Richard

Without 20% down, I had to buy private mortgage insurance (PMI) should I default on my loan. Where is PMI in this discussion?
http://www.athomeinutopia.com Michal Goldman

In doing research for a documentary film that took place during the Great Depression, I learned that in 1932-1933, 24 states across the country adopted emergency legislation against mortgage foreclosure. The state legislatures were responding to a great deal of popular pressure, including enormous demonstrations by people who were unwilling to lose farms and homes to the banks. This emergency legislation was reviewed and renewed year by year. New York State, for example, ended it in 1943, when the economy and employment had rebounded (because of the war effort.)

I’m trying to get through, to make this information part of today’s conversation. But you can look it up on the web if you’re curious.
Cory

I don’t think you need Yale, Harvard, and the New York Times to answer this one.

A nation living on credit for thirty years. A housing bubble packed full of over valuation and “flippers”.
An ethically challenged financial and lending sector.

The answer is what is already happening: a correction. I just don’t know what housing will look like after the correction. Maybe we’ll all learn from this.
Susan

I am a paralegal at a law firm that has been doing foreclosures for a major bank for the last 7 years. I have noticed a real difference in people’s circumstances.

When I first started, it seemed like a lot of people felt their mortgage payment was an inconvenience and paying up was going to put a crimp in their lifestyle. I had one lady complain that she was going to have to sell some of the antiques from her beautiful home to get out of foreclosure.

Now people seem to be much more desperate with huge medical expenses, lost jobs, etc. and not many options. I worry about where these families are going once the home has been sold at sheriff’s sale.
Mari

“Spank the banks.” Very cute. Sadly ineffective as a preventive measure after the damage has been done, however.

Go to the top, gather the ringleaders and cut off some heads. Post ‘em on pikes.

Sorry, but the hubris and haughty attitudes of these bankers deserve a punishment far greater than a mere spanking.
Putney Swope

Elizabeth Warren wrote a very good article about the demise of the middle class. It’s going away and it’s going fast. We are being squeezed by lower wages, fear of losing jobs, one heath care crisis away from bankruptcy. What’s going to happen in this country, who knows but right now it’s not looking to good for the middle class.

http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html
Christy

So TARP really helped the banks, now we have BOA taken out full page ads “thanking” the US taxpayer and paying it back ‘early’ just so they can get back to business as usual, paying outrageous amounts to the next person to help screw us once again!!
Glenn Pollock

In the depression in the thirties bank foreclosed on farms in Iowa. The bank soon realized that they were not farmers and that they could not find buyers for the land. They then allowed the farmers to stay on the land as renters. Many of the farmers bought the farms back when they were able to. Farmers were able to make more money during the war.
http://www.magnoliaclassic.com Lee in SC

Programs are set up with good intent but the participants work the program to their own benefit. Billions and billions were spent on bank bailout. It was done almost immediately… no trial modification. We live in society of “What’s in it for me?”. Home owners are thrown under the bus!
The is a definite pattern of banks responding to people who are 90 days late by offering a ‘work out solution’ while also beginning the foreclosure process. The home owner waits for months and then at 8 months deliquent, the bank requests the house be auctioned at the courthouse. The bank gets compensated for their loss and writes off the final loss at foreclosure sale. Why wait for the consumer?
Blakeney Bartlett

I was in the real estate business for a long time. A related business which has rarely been mentioned in all this discussion about foreclosures is the appraisal business, which I think had a huge hand in the initial rise of prices. Because there is a federal requirement that the appraiser see the contract between the buyer and seller (I think the purpose is only for them to see any adjustments to the price), the appraiser knows what sale price they have agreed upon.
It is amazing how consistently the appraisal comes in at or above the contract price.
The banks are required to have an appraisal on file when they make a loan showing that the loan is at or below the value of the collateral.
While we make all these other changes, the rules for appraisers need to be revised,too.
Putney Swope

Go to the top, gather the ringleaders and cut off some heads. Post ‘em on pikes.

I like it but I think doing this in a more metamorphic way might be more to the point.
be
susanne

We need rent control back ……That kept the housing prices down ….
Mark

Putney,

You’re spot on to quote what Elizabeth Warren is stating in her article. This has as much to do with stagnant middle class wages (via the death of the labor movement) over the last 30 years, not to mention the rise of the global labor market. Where else does the American middle class worker have to go but down?

Anything meaningful that the Federal Government could do (actually force banks to modify loans through principal and rate write downs) would just be another opportunity for the right to rattle their jewelry while crying “socialism.”
Jackie

The idea that that average person understands mortgages and financial contracts is false. People have always believed that, for the most part, “if I qualify for the mortgage, I must be able to afford it, otherwise the banks wouldn’t give me the loan.” Because of the loosening of regulations over the past few administrations, banks created new predatory terms to line the pockets of their executives — and nothing was done. In good times, the average person was able to make the payments, but as conditions changed and financial organizations became more greedy, the system collapsed. The answer — rewrite and re-enforce the regulations. Hold the banks responsible for the situation they created, and charge them with financing the clean up. Surely the execs can forego this year’s gold shower curtain to finance this.
http://? Jerry DeSalvatore

What about us folks who had a great income and now have very slight income. What did we do? We didn’t over-mortgage ourselves. The economy took us down this ugly road. Enough with this “live within your means” We did! Banks will modify your loan if you make them. You gotta fight! JD
Susan Rice

This is a blatant plan to reduce consumers into a second tier financial system (huge Profits vulnerable consumers), a deliberate effort by the big 5 banks, whose truth in-lending statements were fraudulent in design. This started with huge oil prices, then food stamps increases, credit cards whose rates raise from 9 to 30%,those who weren’t behind will be now, now that credit scores will limit access to equity. The government shouldn’t bail out anyone, they should write the law to protect the citizens who they are responsible to, not banks. The next crisis will be retail and local small banks….On point needs to connect the dots its shows have explored the last year.
Anonymous

I wonder if the reason that banks have not been lending is because they have seen the foreclosure crisis coming and they want to shore themselves up in advance…?
Brian

Elizabeth. It is unfair. We have rented because we knew that the houses prices were out of whack in relation to salaries.

Now the government is propping up the prices which mean that people who didn’t buy are again paying through taxes but get nothing.

I pay a huge amount of rent for a slum apartment (why? because the real estate craze means everything is expensive) and now my tax money will go to people who bought McMansions.

No, I don’t want my money going to banks and I don’t want my money going to home owners.
Mark in PA

My wife and I graduated from grad school three years ago and were lucky enough to get jobs. Instead of going out and buying a house, we moved in with my parents paid off a chunk of our debt and are saving our money. We have not benefited in any way because of the constant bailing out of everyone, the loaners and the loanees, nor do we expect to benefit. What is in it for those who have acted responsible?
frank

The solution seems very simple. It’s like buying a car: the lender does not give money to the borrower without restrictions; the car is collateral. If the taxpayer money (TARP, bailout) were given to the banks with a requirement that it be used only for foreclosure prevention, and this were enforced by stopping the program for a given bank if the rules were not followed, would this work? The government is giving out free money to the banks, and they don’t help the homeowners. Please comment.
Aaron Weaver

We keep on hearing that foreclosures are something that the banks want to avoid, however it seems some banks rush pell mell to foreclose as soon as possible.

I realize this is anecdotal, but a good friend despite owning a house he could afford and having several months of savings in place is now, after having quite a few months of reduced income (he’s in sales), in the process of fighting off foreclosure. Countrywide?Bank of America refuses to accept multiple partial payments for delinquent mortgage payments and instead will only take full payment. Whereas my friend could make partial payments and get caught up over time, the bank will not allow this.

Such bank practices only push people who could otherwise recover on their own toward foreclosure. And I know this situation is not unique to my friend.

To the big banks really want to help keep people out of foreclosure??? If so, it seems that they need to change some of their practices and perhaps policy as well.
Lyn Hadden

Isn’t the problem the fact that the banks don’t OWN the mortgages anymore – they’ve been bundled and sold. So why would the bank care about working with the homeowner?

In the old days, the bank owned the mortgage and had an investment in working it out.
Sam

Yes, I live in a place I can barely afford – depending on the LPR being applied to my loan. However, I also have a job that pays me well enough to survive. Would it be nice to have my loan cut – yes. Did I enter into the agreement with full disclosure – yes. Should I have been approved – no.
What irritates me are the people that say they didn’t know what was going to happen. That’s your fault. I spent many hours with my lender trying to find the best package for me. My lender made sure I knew what was going to happen and they still approved me knowing what my income was.
However, the fact that I lost over half of the value in my property since I purchased it… well, that’s the part that hurts the most because now I am just shelling out money for something that won’t give me a return… almost like renting but with taxes and higher bills.
mindy johnson

I bought a house I could afford with a standard mortgage. I never missed a payment. Lost my job. Tried to refinance just to lower my INTEREST, not principal. Drive 20 year old car, still havent turned on my heat, scrimp and save for when my unemployment runs out I have no other income.

Citizens Bank told me my expenses are too low to qualify!! If I bought a new car maybe I would. Worst thing, nobody seems to even understand the concept of thrift, of doing without. If I had a fancy house and big debt I would qualify. Counseling agencies a scam I went thru one they do nothing.
doug stoddard

Why should renters have their tax dollars used to basically re-inflate the housing market. We should let housing prices fall to their naturally level. There is a whole group of people who pay taxss that will never be able to afford to buy a home, especially in the Boston area. Why should their tax dollars go to folks who bought over prices houses? Also what happens when these folks sell their homes down the road? Do the taxpaayers get part of these profits back from the homeowners who were bailed out?
Michael

Why did they leave out the car dealers out of the consumer protection? We all know there not very honest and immoral
Brian

I know it was a trap but prosecutor the banks and the people who made the “misleading” loans.

We should not bail out people who took out loans on houses they couldn’t afford. Sorry.

I have much more sympathy for people who lost their jobs due to this financial crisis the banks brought on us and are no unable to afford their home.

Or for people who are losing them because of medical bills.

Those are the people we should help.
Jay

Some wag said we’re having an affordable housing crisis. It’s bad when gas prices are up; why is it good when house prices stay up?

Houses got too expensive. Any long-term cure will see lower real home prices, no matter what nominal prices do.
Melanie

I think the banks are holding us hostage because they want the gov’t to swoop in and bail out mortgagees so they can pay the mortgages in full. They don’t want to eat any of the losses caused by their own irresponsibility – so they are not even trying to do loan modifications on a case-by-case basis.

The govt has to force them to do loan modifications. No carrot – only a stick.

I’m lucky enough to be able to look into buying a foreclosure and I tried contacting banks about getting a list of homes in foreclosure – and it was impossible -no up-to-date list with prices or addresses or any usable info.

And for those of you who were responsible and don’t think this effects you – just wait until you have sell your home in this depressed market. This is everyone’s problem.
Mari

“…doing this in a more metamorphic way might be more to the point.” – Putney Swope

The metamorphosis I would like to see is rather Kafka-esque. In Franz Kafka’s, “The Metamorphosis”, A business man wakes up one day and realizes that he has morphed into a bug. It’s about how he observes himself and how he is observed by others.

I don’t see big bankers having much capacity to look at themselves as anything other than powerful gods and “masters of the universe”. Rather helpless without their money and power, though. Take that away and they’re just like the “bugs” (homeowners) whom they have wantonly crushed.
Dee

Elizabeth Warren is a national treasure and I wish we had put her in charge of designing TARP instead of picking up the pieces.
Brian

Melanie

Of course that is what the banks are doing. They don’t want to eat any losses. Why should they?

AIG’s counterparties got 100 cents on every dollar courtesy of the American Taxpayer.

The banks got hundreds of billions they are sitting on.

The banks won’t take any loses. The taxpayer will pay once more when things get desperate out on Main Street.
grownup

Responsible people who are living below their means are the real victims
here. Not the bankers, Not the loan defaulters.

The predatory lenders and the irresponsible borrowers are the villains
of this crisis.

Why are we talking about diverting wealth from the good honest people
to the greedy lenders and borrowers? If you really want to help the
economy in a fair way, give everyone a income tax break.

No bailouts for banks, take back bailouts from banks so they cant
give out ridiculous bonus for messing up.

No bailout for loan defaulters. Ever heard of buyer beware and personal responsibility?

STOP using the term home owners for people who are defaulting on their
loans. They are not losing anything since they dont own the house in the
first place. If anything they have gotten a free ride living beyond
their means for all these years.

I know plenty of good honest real homeowners who are paying their mortages
on time , these are the true homeowners. They should not carry the burden of
the irresponsible.
Kevin Kelly

One Percent for All
Here’s a simple idea to help “kickstart” our floundering economy.
Instead of bailing out financial institutions and others….
Create an agency to provide 1% (Fixed Rate) home loans to any individual who presently owns a primary residence within the United States. These could be direct loans or guarantees to financial institutions with the foresight to do it. A refinancing fee could be charged to create the capitol needed to run the program. Can you think of anyone not willing to pay a point on the loan to lower their mortgage rate to 1%?
This would encompass the entire middle class of this country and beyond. Think about it. This would cut the single most expensive monthly item on everyone’s budget, their mortgage payment, in half or greater. Almost certainly the money would be plowed back into the economy in many forms. Possibly even a few new cars might be purchased along with all kinds of other durable items.
• 1% Loans would make housing available for many new homeowners and those facing foreclosure. Particularly those already left out due to circumstances beyond their control.
• Make the loans available with a reasonable horizon. Let’s say for the next five years.
• Fixed Rate Loans with a thirty year term would seem to make sense.
• To qualify you must reside within the home for the next 5 or maybe 10 years.
Yes, this would certainly hurt the banking and financial industries. They might have to find other methods to find their way to profitability. Perhaps going back to servicing the customer’s best interest might be something to consider. And yes there will probably be a few less architectural wonders built in places so few of us visit anyway.
Let’s not even start with executive compensation.
In short, bail out the taxpayer with his own money. We are going to be forced to pay for the mess anyway. Why not put it into our own pockets and see what happens.
ONE FOR ALL
Kev the Welder
Mike

Dee you are absolutely right about Elizabeth Warren being a “national treasure”. She is a straight shooter who you can trust. Tough to find on capital hill these days. I would indeed like to see her in a position to make a difference along the Yale professor. They both have a grasp of the problem with reasonable solutions that get the incentives right. Great show Tom!
Brian

grownup

I totally agree. But you see the writing on the wall. First the banks, then the people who borrowed.

The rest of us will just pay. Getting nothing.

I know Elizabeth will argue it will stabilize neighborhoods to bail these people out. But it’s not fair.

What would stabalize neighborhoods and is fair is if prices of homes fall dramatically where middle income hard working people could actually afford to buy one.
Anne

The banks are definitely not helping. I tried to refinance my home loan to lower my rate and my mortgage bank (Citibank) told me it will cost me around $9,000. Sceptical of that amount, I called a mortgage agent I know and found out that it would cost barely $2,000 and he advised me to postpone till the rates are significantly low. Recently, my cousin, who lives in Georgia, told me about the NACA home save program and encouraged me to check into it. So, I attended a NACA workshop in Boston during which all the attendees were told everyone who wants to participate in the NACA program must register to vote through them. I asked if this policy applied to people who were already registered and the answer was YES! Needless to say, I was too disappointed to pursue this avenue. Meanwhile, my cousin who signed up with NACA several months ago, is still waiting for the completion of her loan modification.

It is very disheartening for homeowners, no matter their payment status. Most of us are current on our payments but will simply like to lower our monthly mortgage amounts. Unfortunately, we are not treated fairly by the very banks who receive a great proportion of our monthly income, despite the fact that the federal government has bailed them out with our tax dollars.
Mari

“I know plenty of good honest real homeowners who are paying their mortgages on time , these are the true homeowners. They should not carry the burden of
the irresponsible.” – grownup

When I could no longer earn enough to pay my mortgage, support my kids and own a motor vehicle- due to flat wages and unemployment-I sold my house and paid off the bank. Never missed a payment, either.

Clearly, I was too responsible for my own good. The gouge of paying rent with no equity has only exacerbated the financial hemorrhage.

Like it or not, responsible people have to live somewhere, too. The game is rigged. If you enter home ownership in good faith as a grownup you will be rooked. Tough luck, huh?
Brian

I’m in limbo after being accepted by Bank of America into the reduced rate program and making all reduced payments since July.

I got a Fed Ex on Nov. 19th asking for a signed copy of IRS form 4506-T (which gives them permission to get copies of my tax return directly from the government). They gave the option of faxing or sending it back in the prepaid and addressed Fed-Ex envelope.

I had faxed them that form two different times along with copies of my tax returns four times.

I immediately signed and faxed it,then sent the original via Fed Ex.

Two weeks later, on December 5th I received another Fed Ex envelope with the same exact letter asking for the same thing.

I don’t believe there could be this much incompetence no matter how many applications they are faced with.

The procrastination has to be purposeful.

I am going to be faced with a larger payback after the late and attorney fees are factored into the new loan, I guarantee it.

Either that or they are waiting for the housing market to improve before actively pursuing fore-closer.
Marc

Bankers aren’t doing this because they’re bad people, it’s the mechanics of how banks make money. Also, has anyone bothered to report on how profitable the banking industry is. I know the fund managers and senior managers are making gazillions, but how profitable are the banks? If it’s just the top 1%, go after them. It’s a little like the demonization of health insurers. Every day, I hear about the greedy insurance companies making huge profits. When I see the numbers, they’re in the bottom third of all industries in terms of profit. Too easy to make them the scapegoats when others were pressuring them to pay for every claim that came through.

Don’t get me wrong – I won’t lose any sleep over any misfortunes of big corporations. And I think the recession has put a ton of people into dire straights who did everything right. But I don’t think it helps to simplify who’s responsible.

I think there were “predatory lenders” who misled people, but more people who knowingly got mortgages they couldn’t afford in the hope that rising real estate prices, would take care of things. And I know a lot of millionaires today who were successful in this so let’s not be too quick to say how stupid this was. I also think the Barney Frank’s of the world made this possible by leaning on Freddie and Fannie to underwrite just about any loan – no matter how bad it looked.

So who are we looking to for the solution? As someone else put it, the same people who put us into this mess and profited by it. Geithner and Krugman are the architects. Frank’s still there and in a more elevated position. And the Wall Street lobbyists are spending money to make sure nothing much changes. But really why should they change – we’ll vote the same people into office next time around.
Pitney Swope

Mari, sorry I meant metaphor not metamorphosis, I should wake up before I type…

But it is very Kafkaesque come to think of it, how our country is run.
http://brahmag.com Brahma Garland

Hear is a simple win win solution for banks and many home owners.

Especially helpful for self employed and other who are temporarily struggling with their mortgage, my self for example.. though i have never missed a payment in 21 years.

Give home owners who have equity in their homes (based upon taxed value) the option to just pay principal without any paper work or penalty. Without bank or government fidgeting with the figures.. the exact same interest would be paid just delayed. This could be done as long as there are no missed payments and the principal is paid in full each month. This could be used at owners discretion with out any application or bank requirements… unless and until the loan was defaulted upon.

This would keep many people who like me have never missed a payment in 21 years and have large equity in their house (which is worthless do to many foreclosures so unsellable) from loosing their homes. The banks and homeowner would come out much better in the long run.

If any paper work is required i would just have to walk away from my home.. i’m self employed and my income over the last 10 years has never ever been anywhere close to whats required.

So if the government just told everyone who can show a property tax bill and mortgage bill proving positive equity.. that you only need to pay your principal and the interest you miss will just be tacked on to the end of your loan.. it would save me along with countless others!

I have never received a cent in welfare, never a penny in unemployment benefits.. i have been paying my taxes for all my working life.. this is the least a just Government could do for my daughter and myself who other wise will soon be homeless. We other wise qualify for no a single state or government program, (no employment history other then self employed with very modest income from an artists income) and will be on the streets.

p.s.. We have always had a fixed rate mortgage we are fine with the terms, do to unforeseen cercomstances we need a little help not in any kind of reduction of principal or bailout but just some flexibility in the loan. I have done that on numerious occasions with tenants who have been struggling.. bending over backward to help them in hard times. I do not see why in these time the Government can not make this adjustment for diligent home owners?

Yes the banks would temporarily not be making as much but would loosing nothing and gain much more in the end by keeping good diligent paying owners and preserving property values.

If anyone reads this and has good practical advice how this can happen, i’m all ears?

Thank you,
Brahma
Pitney Swope

I wonder how many people foreclosing and filling for bankruptcy are doing so because of medical bills from a serous illness or injury. How does health care and the lack there of play into this mess.

If you lose your job it stands to reason that your going to lose your home. I don’t know how people can be bailed out because of this problem.

The people who over bought should have known better and I don’t think they should be bailed out. If you were making 60k a year and bought a $500k house shame on you as you should have been making about 160k per year before taxes.

Then there are the people who were using their homes as ATM’s this is an interesting problem and the blame is on both sides.

I agree with last statement by one of the guests, that the banks should be taking more of a hit the bad mortgages they have created.

Basically this is one hell of a mess.
Rachel

Here’s a thought…since all these profits were ill-gotten, the moral thing would be for all levels of government to repay the tax dollars collected on corporate profits, capital gains, and income taxes from the initiation of these toxic assets.
mike from NH

Pitney, thanks for your earlier link to the Elizabeth Warren article. Elizabeth Warren for Secretary of the Consumer Financial Protection Agency???? We don’t need another Government agency subject to the whims of Congress (ie Barney Frank and Freddy and Fannie Mae). Ms Warren has shown to be a truth teller willing to stand up to special interests, thus I’m willing to take a chance with her at the helm. Let’s reinstate Glass Steagle separating boring consumer banking from the risks of investment banking!
Josh K.

What to do?? I sent in my govt documents to Chase in early July, only a month after I was laid-off in case I needed financial help. I called every single month to follow-up and the only reply I get is that is has not yet been reviewed. Now my unemployment has run out and my wife is unable to work. What should I do to move the process forward? I can’t look for a job that offers significantly less without lowering our housing expense.
Martin Evans

the past six months have demonstrated that the government’s plans to help homeowners to avoid foreclosure have failed. Foreclosures are occurring at an increasing rate again because of job loss or furlough. The incentives in the Obama plan are insufficient to encourage lenders to renegotiate the mortgages. We need a new plan. Fortunately there is one readily available: the Shared Appreciation Mortgage. These have been discussed recently (September 2008) in a Brookings Institution Paper by Andrew Caplin, Noël Cunningham, Mitchell Engler, and Frederick Pollock. With a shared appreciation mortgage, another institution joins with the homeowner in paying the mortgage. I would suggest that the Federal Government step in as an institution of last resort to help distressed homeowners. In my version of this scheme, the homeowner would pay what he or she could on the mortgage. The Government would pay the rest. Over time, their shares might vary as the owner became more or less capable of paying the mortgage. When the house was finally sold, homeowner and government would both share in the monies realized in proportion to the amount of their respective investments. Entering into one of these agreements requires no negotiation with the lender. He, she, or it continues to get the agreed stream of payment agreed to when the mortgage was arranged. Only a government agency and the homeowner need to make an agreement. This scheme also has collateral benefits. First, the lender is made whole so that if used widely, the potential for mortgage default is eliminated and all those fancy derivatives are also restored to value. Second, the individuals remain in their homes, and children remain in their schools. Third, neighborhoods remain vibrant with no empty houses reducing the local values. Congress should pass an act for the “Restoration of Mortgages” that allow and fund the Federal Government to be a partner of last resort for distressed homeowners. Maybe over the long haul, it may even make money. One other point, Shared Appreciation Mortgages that are issued when a house is first purchased suffer very negative tax treatment. However when an SAM is entered into as a restructuring, interest deductability remains for the homeowner.
Pitney Swope

Josh you lost your job, that’s a tragic event in any persons life. We don’t have the social programs that they have in some European countries. In some you could have received unemployment and SS benefits to cover your monthly payments for a while. In France it’s something like 65% of your salary.

However the bottom line is you lost your job. If I lost mine and could not pay my bills I’m in trouble.
The bank is not obligated to give me a break. Nor are the gas and electric companies.

You did not mention why you are trying to get a your mortgage refinanced. Is it because the value of the house has dropped. (Mine has lost about 150k in value)
It seems that you were trying to do this before you lost your job. You can walk away and maybe you should.
http://www.lit.org/author/fritzwilliam F. William Bracy

One guest proclaimed, in regards to the housing crisis, that there is always enough blame to go around. What no one says, however, is that there is never enough PAIN to go around. The pain part, we all understand, concentrates at the bottom, where the most severely affected are the powerless … the gullible … the vulnerable … and eventually, the disillusioned. Amazingly, Elizabeth Warren relayed her story in short from the late ’80′s – early 90′s, and it was almost identical to mine … hers in Texas, mine in California. The difference is that she has obviously recovered. I never did.

Many who are experiencing the current housing crisis never will (recover) either … they just don’t know it yet. The saddest stories will forever be those that remain untold. Many will have reason to believe that they are on the road to recovery, only to discover that the system will never allow it–at least, not without winning the lottery or (as in the case of E. Warren and those who wield the scythes of power) somehow pushing themselves before the hog trough most Americans know as government “Of the People, By the People and For the People.”
Paul Palmera

I listened to part of the show this morning on the mortgage crisis. Tom, you’re quite a phrase-maker. “Spank the Bank,” I love it, kind of like “Stump the Chumps,” a regular feature on Car Talk with Click and Clack. I think you should make Spank the Bank a recurring part of On Point. On a monthly basis, say, you could single out for opprobrium the egregious practices of a particular financial institution.
Dishartened new home-owner

As I read all of these replies it seems that everyone is looking for someone at whom to point the finger of blame. But it is immediately clear by the variety of reasons people have given, among the top most prevalent unemployment or medical bills, that this is a much more complicated issue and instead of looking for someone to blame we should all be thinking of ways to pick ourselves back up and move on. I know that as a college graduate being forced to wait tables for a living my income depends on other people, just as in a real, productive economy we should all be able depend on each other(not just banks). Therefore there is no blame to be passed around, instead we should all be looking at our lives and trying to find ways to improve our economic standing as a whole so that this doesn’t happen again…
Cilla

As a paralegal, I encountered an elderly couple who are the “poster children” of ripoff in home loans by a fly-by-night lender (that turned out to be a front for one of the big boys! not uncommon, I later learned).

This couple was sold a complicated loan – 2 loans actually – for far more money than they went in for, and would have lost their home, if not for the legal aid attorney with whom I worked.

The lender actually wrote an extra “0″ on the couple’s monthly income (Social Security…sheesh), qualifying them for the big loan that they didn’t even want.

Obvious case of fraud, and we ultimately prevailed.
Putney Swope

Dishartened new home-owner unfortunately it will.
People never learn and there are always going to be crooks and people trying to separate you from your money.

I disagree with you that we should not look to people to blame for this mess. There were lenders who deliberately set out to screw people. There were people who used there homes as ATM’s which really never happened before as far as I know. There is a huge difference in taking out a home equity loan to improve your home and using the money to buy stuff.

Then there are the people who bought houses and condos they had no business of buying, but that was more the fault of the lenders who enabled people to buy things they could not afford.

There is a collective amount of blame that I assign to the the people who should have known better:
1- the lenders
2- the legislators who let this go on for so long
3- wall street, who came up with the bright idea of default swaps bundling bad mortgages with AAA rated mortgages.
4- the rating companies like Standard & Poor’s who fraudulently rated these things as AAA and let this house of cards to be built.

Plenty of blame to go around and if the powers to be don’t have the balls to fix it it’s going to happen again, and it might be worse next time around.

“Paul Volcker, a former chairman of the US Federal Reserve, berated the bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.”

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6949387.ece
Rob L

This is all arguing about what to do after hitting an iceberg. The best answer is not to hit the iceberg in the first place. If the Fed hadn’t lowered rates in 2003 to 1% to finance the Iraq war then most of the housing excesses never would have occurred. The Fed is the problem here, and the damage is done. The only question now is who pays.
http://www.tombridgehomes.com Tom Bridge

I am a realtor that works foreclosures and also with a company that helps get mortgages restructured without ever charging the mortgagee. (Titanium Solutions in Salt Lake City) I regularily run into people that have repeatedly returned the documents I have been hired to get from them and send to the lenders. The mortgage companies are extremely disorganized. I couldn’t get through on the phone.
SteveW

Who shall I take umbrage at and who shall face judgement?

After years of worry about employment, health care, mortgages, run-away banks and government with no accountability, I would like to know what your listeners think about this idea.

For those of us in the middle class not yet bled dry by
the banks how about having a credit moratorium.

Let us voluntarily, and only if we can afford to do so,
not use any credit for six months.
No credit cards and no loan applications. Strictly cash,strictly pay as you go – and only those of us who can afford to do so.

I am suggesting that we the people, starve the banks
until we get their attention.

Then we the people can work on taking care of the poor and needy.

Then we the people can starve the government that has encouraged and allowed the reckless behavior by the corporate interests that own our politicians.

A nice rant, but a nice idea?

How do we start?
Twitter this

SteveW…been there…AM there…done that…you’re dreaming…it won’t work…
http://www.huffingtonpost.com/richard-zombeck Richard Zombeck

Floyd Norris is a hack. I’ve written about and read a lot of “articles” like his. Including a report from several months here on NPR about the loan servicer Ocwen. Norris’ observation of the Chase dog and pony show was a joke. What Norris, the NPR show, and other trade rags like housingwire.com have in common is that no one asks the real question: “prove it.”
They take the word of the bank and the bank CEOs – when do they talk to homeowners? What happened to reporting and journalism? What happened to asking questions and finding the truth? Tom asked the question, and Norris didn’t answer. Maybe Chase had a free lunch.
John

Forgive me but BS! Granted the bankers are at fault for this mess, but so are the homeowners that bought homes they knew they never would be able to afford. To offer a principle reduction for those people is as bad as rewarding the banks for their bad behavior and punishes people like myself who wouldn’t buy a home during the free for all because I have never made enough money to afford a down payment saved. As a matter of fact I bought a home 20 years ago for 30,000 which was a stretch at that time. Now I know that I could get more education, find a President of the United States to suck up to and get appointed to FEMA, or find some other low handed crap to try and get a home, but I have played by the rules. To reward people with a principle reduction is pure BS and is as bad as bailing out the banks. The lesson here is be a screw up and you will get rewarded. not to mention what I pay in taxes is bailing out these other two groups that didn’t follow the rules. So if you want to reward someone reward me for not living above my means, and buying into some banks marketing BS! Give me 50,000 for a down payment on a home and to hell with the rest of them. And by the way I work for one of those mortgage servicers at $8.50 an hour the only job I could find after being laid off feb 09 from my 40,000 a year job as a computer operator. Granted I have only made 40,000 the last 5 years, before I was cheap due to lack of experience for the previous 5 years. And frankly being a phone rep has got to be the worst job on the planet, angry people on the phone, in a room of loud mouthed co-workers (you can imagine the class of people $8.50 an hour draws), stealing lunches and talking loudly. The only redeeming thing about the job is people that really didn’t live above their means and just got stuck with the death of a husband, or wife, laid off, or medical problems. The reward is helping those people who followed the rules who just happened to have the bad luck of a tragedy in their lives.
But to write of principal? BS! The banks should have never been bailed out. The banks should have been allowed to fail, and every American given a $100,000.00 a piece. not only would it would have been cheaper, but it would have stimulated the economy far more than putting more bonuses in the pockets of the Ken Lewises of the world.

BS! No more bailout for either side.
http://www.pnart.com Peter Nelson

On Point was doing shows about this over a year ago and the comments were almost exactly the same as they are today! Even with a new President and a new Congress there has been zero progress on this issue. The Wall Street Journal reported recently that 1/4 of all mortgages are now “underwater” (i.e., that the house is worth less than the remaining principle of mortgage).

As I read all of these replies it seems that everyone is looking for someone at whom to point the finger of blame.

I agree that pointing the finger of blame won’t fix the problem, but that doesn’t mean that we shouldn’t punish those who deserve to be punished. I think there are lots of individuals in the banking and mortgage industries who engaged in fraudulent behavior either to homeowners, or to financial institutions (i.e., misrepresenting a mortgage-applicant’s qualifications, or inflating an appraisal) who are still walking the streets when they should be in jail. They need to be severely punished because they contributed to a major crisis, and if we make a sufficient example of them it might discourage such conduct in the future.
http://www.pnart.com Peter Nelson

We should not bail out people who took out loans on houses they couldn’t afford. Sorry.

The problem with this (common) attitude is that it’s a case of cutting off your nose to spite your face.

Massive foreclosures will destroy whatever economic recovery we might be experiencing, and with 1/4 of all US mortgages underwater (WSJ, Nov 24), flooding the market with foreclosed property will drastically lower property values, thus punishing responsible, rational homeowners who still have equity in their houses.

So however emotionally satisfying it might be for you to let them stew in their own juices, it’s not rational from an economic standpoint.
Nick

TO Pete Nelson’s previous comment:

“We shouldn’t lend money to people who took out loans they couldn’t afford.”

Well, we absolutely shouldn’t bail out banks who took actions they couldn’t afford even more than people who have lost their jobs and can’t pay loans.

We have become a plutocracy instead of democracy where we have socialism for the RICH.

Nick
Jack MacSwan

Elizabeth Warren misplaces blame for the mortgage meltdown. She commented on your show that bankers originated the foreclosure crisis in the early 2000s by inventing shaky borrowing schemes and bogus financial products.

As reported in the Wall Street Journal at the time, the Genesis of the problem was in 1999 when the House banking & finance committee, eager to cut everyone in on Greenspan’s cheap money policy, informed the president of Fannie Mae that the latter was going to be the point lender in a 20-city pilot program of “relaxed” lending standards to borrowers with questionable credit histories, over the Fannie Mae exec’s strong cautionary objections. He was ignored.

After the meeting he commented to a WSJ reporter that the program might work so long as real estate prices continued to rise unabated (like there aren’t economic cycles!). The bankers just rushed in after the fact with products designed to capitalize on the emerging market.

Elizabeth Warren is just another fingerpointing Washington bureaucrat looking for a figleaf to hide behind. The bankers should be shot, to be certain, but the real blame for this mess lies with the US House of Representatives, a fact everyone in Congress is trying to hide by blaming the banks, mortgage brokers and insurance companies who, coincidentally, are the heavy contributors to the banking commttee members’ re-election campaigns. Let’s get some sunlight on this.
Alex

“The problem with this (common) attitude is that it’s a case of cutting off your nose to spite your face.”

Not sure that’s true. Foreclosures is a much needed, if painful, purge for the system. On the other hand, bailouts are just supporting the disease and prolong he agony.

And by the way, the attitude that we need to bailout borrowers to save the economy is also very common, but I have yet to see convincing proof of that. It’s all based on conjecture and emotions.
http://www.beccar.wordpress.com Eugenia Renskoff

Hello, Tom, Unfortunately, back in 2002, I had a no money down loan. The interests rates were 9.75% and 13%. My credit score at the time was an excellent 754. My condo foreclosed in November 2005, in spite of all my efforts to save it. Refinancing the loans became an impossible task. I am still not over it. I doubt I ever will be. Eugenia Renskoff
peter

“The problem with this (common) attitude is that it’s a case of cutting off your nose to spite your face.
-Peter Nelson”

Not when the nose is a big cancerous tumour. Not bailing out irresponsible borrowers is
more like cutting the cancer to save the whole body
ellen

Everyone should be required to read the great book by Joe Dominguez, “Your Money or Your Life”.

I am so sick and tired of hearing about the housing crisis and the economic crisis without any talk about personal responsibility and all the money that people spend on completely unnecessary items. Think about it – how many homeowners facing foreclosure can still seem to afford their big screen televisions, cable bills, iPods, iPhones, GPS units, Playstations, Wiis, DVRs, Blue-Ray players, all other stupid electronic gadgets, not to mention new cars, plus all the stupid items advertisers so cleverly and maliciously make us think we “need”.

Yes, I know there are some who have an unexpected medical crisis or serious injury, and I can understand that. But even for the people who have lost their jobs — go bag groceries…get rid of your TVs…get rid of cable…go to the library for internet access…and stop buying JUNK! Walk more, get more exercise, stop eating processed food, take care of your health so taxpayers don’t have to.

As my salary has increased over the years, my spending has gone drastically down. I live in a modest apartment, drive a 10 year old car, and don’t have any of the electronic gadgets mentioned previously.

I don’t believe we should be bailing out the banks nor the homeowners. We should just let this take its natural course and hopefully everyone will learn a lesson from this to live within their means.
http://www.pnart.com Peter Nelson

Well, we absolutely shouldn’t bail out banks who took actions they couldn’t afford even more than people who have lost their jobs and can’t pay loans.

But this is an example of the same emotional thinking that leads people to want underwater homeowners to stew in their own juices.

The vast majority of major economists agreed that if major banks like C or BAC failed it would have a catastrophic effect on the economy, and as bad as it was it would have been much worse if that happened.

If you want to haul Ken Lewis or Vikram Pandit off to the juzgado,that’s great with me. But if their institutions went under we’d be in a lot deeper doo-doo than we already are.

The real problem is that we’ve wasted a crisis – instead of banking reform to prevent this in the future we’ve done virtually nothing and have actulayy made things WORSE by consolidating banks – if they wewre “too big to fail, they’re even bigger now!

BTW, a major reason for lack of reform is that liberal darling, Barney Frank, who, if you look at his campaign donors, is totally in the pockets of the financial industry. Oh, and BTW he’s also the chair of House Financial Services Committee. In 2009 he has been instrumental in blocking any really serious financial reform, while at the same time doing a good job paying lip service to the idea. Here’s a funny, but offensive, YouTube video on this http://www.youtube.com/watch?v=7oqD5z96HEg
http://www.pnart.com Peter Nelson

Yes, I know there are some who have an unexpected medical crisis or serious injury, and I can understand that. But even for the people who have lost their jobs — go bag groceries…get rid of your TVs…get rid of cable…go to the library for internet access…and stop buying JUNK! Walk more, get more exercise, stop eating processed food, take care of your health so taxpayers don’t have to.

Maybe doctor Ellen, you could offer me some advice. I’ve been unemployed for a year and my wife has a rare form of cancer. One surgery, several rounds of chemo, 25 radiation treatments so far, and two more surgeries scheduled. How long would someone have to work as a bagger to pay for, say, ONE Neulasta shot, at $6000 per shot? (Neulasta is used to counteract some of the collateral damage of chemotherapy). I would tell you what the actual treatments cost but frankly I don’t think you can count that high.

And BTW we drive 11-year old cars, make our own food and don’t have cable. We have to pay for internet access because I do web development and they won’t let me do that at the library.
Fred Coale

This seems counterintuitive, but we need to speed up the foreclosure process, not slow it down. People must vacate homes they can’t afford, banks need to take losses and the housing market will move again, albeit at a lower level. “Trading up” and home equity loans got us into this mess. It’s time for a period of “trading down”.
http://resume-objective.us steve

Well looks like greed will win again. I just hope that everyone at the banks gets a sweet bonus this year and a nice place in the afterlife to burn in.
Alex

“This seems counterintuitive, but we need to speed up the foreclosure process, not slow it down.”

It does not counterintuitive at all. Lots of people agree with this point. Speed up the process, purge the system, start anew. Or else it’s gonna be another decade from hell.
http://www.pnart.com Peter Nelson

This seems counterintuitive, but we need to speed up the foreclosure process, not slow it down.

We need to speed up the resolution process, whether it’s foreclosure or write-downs or serious (i.e., sustainable) rewriting of people’s mortgages – you are correct that the uncertainty of having this huge unresolved burden hanging over the real estate market and general economy is the 900 pound gorilla in the room.

I suspect that if every property where people are getting behind on their mortgage were dumped on the market all at once, as you suggest it would wipe out trillions of dollars in equity of people who HAVE been responsible with their mortgages, and this would snuff out any economic recovery that may be starting.

But we need to get this resolves somehow because it’s been a long time and basically NOTHING has been done.
http://www.beccar.wordpress.com Eugenia Renskoff

I lived within my means and below it. No luxury anything, unless you count books.That was not my problem. The problem was meeting a realtor and the loan officer she recommended. While I agree that there are some borrowers who got loans they could not afford, why did the banks/loan officers give them those loans in the first place? Didn’t they know those borrowers were a bad risk?
The talk about personal responsibilty is all very well, but if someone lies to you(or misleads you to make a commission)why should the borrower be blamed for somebody else’s mistake? Who is the professional real estate person, the one who has the real inside information? Why can’t they take responsibility and start making ammends? Eugenia Renskoff