Foreclosure mess ignores one fact – the borrowers are not paying

From the New York Times’ Gretchen Morgenson’s column,

“LAWYERS representing delinquent homeowners have been shouting for years about documentation problems in residential mortgages. Now that their complaints have gained traction with investors, attorneys general and some state court officials, the question of consequences looms large.

“Is the banks’ sloppy paperwork a matter of simple technicalities that are relatively easy to cure, as the banks contend? Or are there more far-reaching consequences for banks and the institutions that bought mortgage-backed securities during the mania?

“Oddly enough, the answer to both questions may be yes.”

All through this new crisis, one comment has been missing. The homeowners (and the hundreds, if not thousands, of sham owners) who borrowed money in a rising economy have simply stopped paying their mortgages.

Some defaults are legitimate. People lose jobs, catastrophic illness brings medical bills. But these reasons have always been there. Others plan to lose their home as some sort of leverage to get the lender to reduce the rate of interest, the principal amount or both. Others just want to move away. These so-called “strategic defaults” demonstrate the feckless nature of America’s homeowners.

There’s no doubt in my mind that there are violations of Truth-in-Lending and other consumer protection laws that address wrongs from the time of loan origination. But the lawyers I know wouldn’t know the underpinnings of the Federal “right to cancel” and what a violation of its rules could mean to a homeowner.

The bottom line is that the problem should not be placed solely at the feet of the mortgage servicers, Fannie Mae or Freddie Mac. It started at the very highest reaches of the Clinton administration and continued through the Bush administration. The bottom line is that loans were extended by hook or by crook through the efforts of dishonest mortgage brokers and bankers to people who had no right to buy a home and those loans were bought by Fannie and Freddie.

Problem loans are here, and they’re in foreclosure. Let the market do what it has to do…fall or rise. All lawyers will do is increase the cost and make it harder for deserving borrowers to get the loan they truly qualify for.

That’s what I think.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Stephen's Title Agency, LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel 973-227-4724 - Fax 973-556-1628

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From the New York Times - Housing Woes Bring New Cry: Let Market Fall

Bad news in the forecast for homeowners on Labor Day? The New York Times prints, "Housing Woes Bring New Cry: Let Market Fall."

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

The Obama administration has been trying to pull a rabbit out of the hat when it comes to the falling value of American homes and poor market demand.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

With the exception of the tax credits gimmick, these programs have not been successful. The mortgage modification program has been an outright disaster.  Maybe drastic action is in order.

Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

There is a lot at play here; financially and emotionally. We've complained before about "strategic defaults" where a homeowner walks away from his home because its market value has fallen below the value of the mortgage. And we've mentioned that every seller thinks her home is worth a million dollars when it's listed for sale.

Maybe the "shock therapy" is what is needed.

Read the full column, and let us know what you think.

For your next title order or

if you have questions about what you see here, contact

Stephen M. Flatow, Esq.

Stephen's Title Agency, LLC

165 Passaic Avenue, Suite 101

Fairfield, NJ 07004

Tel - Fax 973-556-1628

E-mail Stephenstitle AT comcast.net - www.stephenstitle.com

“Strategic defaults” or walking away from the old homestead

Notwithstanding that they can afford to make monthly payments, there are homeowners who walk away from their homes, and leave the bank holding the bag, when the value of the home is less than mortgage amount. Well, it seems that Fannie Mae won’t be taking it on the chin without a little payback.

According to the New York Times, a recent report

“found that about 19 percent of all mortgage defaults in the second quarter of 2009 involved borrowers who could afford the loans. In the previous quarter 21 percent of the defaults were strategic.”

Meanwhile, last month Fannie Mae, the government-controlled company that sets lending standards for most mortgages, changed the penalties for borrowers who enter foreclosure with Fannie Mae-backed loans.

Previously, they would have had to wait five years before becoming eligible for a mortgage. Now they can re-enter the market in as few as two years, as long as they first attempt a “graceful exit” via a short sale or a deed in lieu of foreclosure. Freddie Mac, Fannie Mae’s smaller counterpart, maintains a similar policy.

Much has been written about short sales, but we never knew that walking away from a mortgage was called a strategic “default.”

If you have questions about what you see here,
contact Stephen M. Flatow
Stephen's Title Agency, LLC
StephensTitle@comcast.net
973-556-1628 Fax