Maybe Foreclosure Isn’t the Worst Thing

We all get that mortgage foreclosure is a bad thing, in an absolute sense, but I can’t help but wonder whether this is actually a positive development for borrowers, lenders, or the entire system:

Retsinas said that the increase in people three months behind on their mortgage coupled with the drop of mortgages entering the foreclosure process likely indicates some sort of intervention is preventing those borrowers who are seriously behind from entering foreclosure.
Possible interventions, he said, include cities passing ordinances that have made it harder for banks to foreclose, especially on multi-unit houses. Also, federal regulations have encouraged banks to allow borrowers to “modify” their mortgages and lower their payments by changing the interest rate, repayment term or, more rarely, the amount of principal due.

It seems to me that it mightn’t be in the interest of anybody to prolong a difficult situation, whether that means postponing payments to the end of the agreement or some other mechanism for passing along the underlying financial problem.

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Patrick
Patrick
11 years ago

But I think the point here is they’re modifying terms with the expectation that the borrower’s financial situation will change in the future. If they were able to afford $1000 a month when they had a job and can only afford $500 a month now that they have no job (or one less job), then modify so that fits and then go back to the $1,000 a month when they get a job again.
Or worst case, the foreclosure will happen later when there are hopefully fewer of them going on. Spread out the foreclosures.

Warrington Faust
Warrington Faust
11 years ago

” the borrower’s financial situation will change in the future.” That is the swan song of every bankruptcy.
BTW, bankruptcy can actually improve your credit. You no longer have any large debts and you can’t file again for 7 years.It used to be that Sears would give you a new card as you stepped out of the hearing room, if you agreed to pay what you owed them. I think a stop was put to that.

Warrington Faust
Warrington Faust
11 years ago

” the borrower’s financial situation will change in the future.” That is the swan song of every bankruptcy.
BTW, bankruptcy can actually improve your credit. You no longer have any large debts and you can’t file again for 7 years.It used to be that Sears would give you a new card as you stepped out of the hearing room, if you agreed to pay what you owed them. I think a stop was put to that.

Stuart
Stuart
11 years ago

Once again, Republicans seem to think that “tough love” is the only solution for complex problems! After all, it worked so well for the war on drugs and all the other law enforcement crackdowns….that now states are going broke taking care of their prison populations. It appears Justin can only play checkers – not chess! That is, he can think about one or two moves out, but no longer than that. But the progress of the human animal has been specifically due to the many people who CAN play chess, and therefore can understand the consequences of actions many moves ahead. I once had a dude who I lent money to for a car. He stiffed me, but I had still had the title. He disappeared – I was out of luck for $5K. Well, a couple years later I get a phone call from him…….he needs to sell the car because he has some health problems. So I excuse all the interest due (for years) and I get my 5K. It was MUCH better than having him simply park the car somewhere or give it to a chop shop. I had another party whom I gave a large mortgage to when I sold them a commercial building. They ended up going bust and not paying their property taxes for two years, etc. I paid the property taxes – 18K – and then negotiated with them to give me the deed back so I would not have to foreclose. Easy, peazy, lemon squeezy! The point is that no one answer is best for all involved. The idea of “getting it over with quick” does not take into account the complete wreckage that would result when a vast number of properties come on the market at one time. The same goes… Read more »

Justin Katz
11 years ago

Patrick,
It may be that the defining albatross of young adults will prove to have been the idea that things are going to be better. Witness college loans, easy credit cards, easy long-term car payments. All premised on the expectation that the big break is around the corner, with the acquisition of a nearly worthless BA.
How many months of overdue payments ought people to accumulate? How much back-loaded debt should the financially unstable place on their futures in the interest of helping high-profit investors to hold the economy hostage?
That last twist notwithstanding, I’m not saying that there’s no argument for modification of terms, and the like. My criticism is of this groupthink that clearly assumes that holding off foreclosure by any means possible is necessarily a good thing.

Patrick
Patrick
11 years ago

“holding off foreclosure by any means possible is necessarily a good thing” Ok, I can agree with that, and I can see that we’re coming at this from different angles. But some of the things you said in your comment above have been resolved a bit. There has been reform already in the area of credit cards for younger people and with regard to availability of mortgages. I just refinanced mine and what a nightmare/headache that was. It used to be that a simple phone call to the mortgage guy and submitting some basic paperwork was all I needed to do. This time, I had to submit a lot more paperwork and had five separate re-submissions and updates. As for college loans, check out Tom Ward’s OpEd this week in the Valley Breeze, it’s about exactly that. I’ve been saying for a couple years now that colleges and their financial aid offices are the next big bubble in our economy and will be the next sector sitting in front of Congressional hearings. Any idea how much an Ivy League education costs? I’m hoping your answer is “I don’t know” because that’s about the only correct answer. It’s worse than an auto dealership or the airlines with regard to different people paying different prices. I also believe that a big reason for the high cost cost of everything in the medical field is tied back to the cost of college and medical school. New doctors can easily graduate with more than a quarter million dollars in debt. Then they work a residency for relatively little money and huge debt. Then add on to that the huge malpractice insurance they have to pay. I spoke to one neurosurgeon lately who said he pays $80,000 a year in malpractice insurance alone. So with… Read more »

Warrington Faust
Warrington Faust
11 years ago

Pstrick, I think you are taking the easy, but visible, path. If you look at total medical costs, doctors fees are not that large a percentage.
I think educational and medical costs are skyrocketing because they have severed service from payment. It is all about “third party payments”.
And yes, I do know what an Ivy League education costs. While paying it, I was very disturbed to find a sign on my daughter’s dorm room “Keep door locked, high theft rate”.

Ken
Ken
11 years ago

I can’t believe looking at South Dakota (South Eastern part of state) there are 2 bedroom houses on fairly large land tracks selling for $9,000.00 (No typo $9K) with average state-wide property tax of $1K per property, no state-wide income tax, sales tax 4%, gasoline tax $0.24 and #1 ranking in nation for business friendly state also unemployment is about 4.8%.

Stuart
Stuart
11 years ago

>groupthink that clearly assumes that holding off foreclosure by any means possible is necessarily a good thing.
A lot of this is what we are born with – the idea of always hoping. If you read your history, which I’m sure you do, you will see that when people are in the most difficult of situations (concentration camps, war, disease, etc.), they always hold out hope that salvation is right around the corner.
And so it is with foreclosure.
I know a lady who makes about $45K a year and still owns two houses, one worth 700K and one worth 1.2 million (at the top of the market).
She has held onto them all this time, trying to find buyers, refi or any kind of help. She, along with millions of others, hoped against hope that something was going to change quickly (house prices go up) and that she will be Ok.
She won’t be OK. Neither will millions of others.
I still think, however, that it benefitted the system for her to have that hope – it spread out the pain!
We are in for probably another decade of reverberations from this crash…but, hey, it’s the free market just playing itself out, right?

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