Stop the Foreclosure Madness!

03/16/2009 10:42 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

When it comes to foreclosures, there are no more “good people” vs. “bad speculators” who deserve to learn a lesson. There are only stupid policies that hurt families—and the social fabric of our nation.

I’ve come to that conclusion after a week spent working on a television special report about “The Face of Foreclosure.”  Talking to people from all walks of life who are about to lose the family home gave me an insight that goes far beyond all my profound beliefs that “the market needs to work things out.”

Yes, I believe in free markets, and accepting the inevitable consequences of actions. But when those actions were actually encouraged by government policies, and then the consequences are made worse by illogical regulations, it’s time to say STOP!

The first wave of foreclosures was caused largely by rising monthly payments as adjustable rate mortgages reset. But now we’re into the second wave, caused by job loss that is sweeping the nation. There are no signs that will subside soon. And unless we switch gears on the mortgage foreclosure crisis, things will only get worse, fast!

The Epitome of Stupidity

The housing market is being destroyed by the epitome of stupidity which goes back many years to Congress’ push to force banks, as well as Fannie Mae and Freddie Mac, to make more loans to less qualified homebuyers. The Federal Reserve under Greenspan takes its share of the blame for keeping interest rates too low. And of course, no one regulated the mortgage brokers who got a thousand dollars a pop for originating those bad deals.

But, has anyone learned a lesson yet? Obviously, not. The much-hyped “Hope for Homeowners” program managed to modify only 450 loans nationwide over the past 18 months. And there are no signs that the new Obama foreclosure plan will do better. The guidelines are vague, and the lenders and processors are overwhelmed.

Try calling your mortgage lender and you’ll find yourself trapped in voicemail hell. No one seems to have any idea how the new modification plans should work. And yet more foreclosures are filed every day.

Most mortgage companies won’t even talk to people until they’re two months late on payments!  By that time, their credit is ruined, making a loan modification difficult.

Ironically, some loans aren’t being modified because they carry the required PMI insurance. That means the bank is better off foreclosing, because the insurance will pay back the mortgage balance. Meanwhile, the homeowner who wants to work things out is forced out of the family home.

Loan modifications don’t work if the homeowner lost his or her job. But does it do any good to foreclose and throw those people out on the street—where they can’t find a place to rent because of the foreclosure on their credit report?

It’s time to stop the foreclosure madness! We’ll pay the price as a society. I’m not advocating a free pass for those who were greedy. But there has to be a sensible system to allow those who want to save their homes, but just don’t have the income now, to stay put—and pay what they can until times get better. 

Banks and struggling homeowners must connect—and not through foreclosure auctions. They’re only making things worse!

What do you think? Please share your ideas about how to stop the foreclosure madness by adding your comment.

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