The Mortgage Insider had a great Q & A earlier this week on whether the government should help people avoid foreclosure. I am extending the debate here.
Reporter Mathew Padilla put that question to Lawrence Roberts, who writes the irvinehousingblog.com, and who thinks the government’s foreclosure relief actually is hurting society at large, and Kevin Stein of the California Reinvestment Coalition, who believes it is beneficial.
I wondered how mortgage professionals in Huntington Beach see this controversy. Here are a couple of responses so far from folks who work in the mortgage industry in this city, as well as write blogs about it: 
Dennis C. Smith of Stratis Financial:
“I read this article earlier this morning and was very much in agreement with Roberts. I do not know about going so far as making it extremely difficult to access home equity–what about the elderly and reverse mortgages or parents financing children’s education, or purchasing some investment property, or gifting for a child to purchase his/her own home?
“There are a myriad of possibilities that warrant someone accessing their equity and I do not agree in penalizing such access. They had a law in Texas until several years ago that prevented it and it hindered markets.
[But]I am adamantly opposed to using government funds or policy to prevent foreclosures. The analogy of the renter versus the delinquent homeowner was very appropriate.”
Don Fragoso of the Huntington Beach Mortgage Oracle:
”As I understand this debt the answer is clear. The HOPE Program would help everyone equally that would qualify in my opinion. Should it be allowed is difficult because we have to live in the now. With all of the bank bailout money it is difficult so say that these help programs should not be allowed. With that said, you can not help everyone.
“To answer your question, foreclosure relief is not a good idea. It just prolongs the problem.”
(I’ll have a Q & A with Fragoso next week.)
What do you think about foreclosure relief?
Do these mortgage pros’ responses surprise you at all? Share in the comments!
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“There are a myriad of possibilities that warrant someone accessing their equity and I do not agree in penalizing such access. They had a law in Texas until several years ago that prevented it and it hindered markets.”
From a mortgage broker’s perspective, I imagine most restrictions on lending are not going to be popular. He may not be seeing the bigger issue; once people have access to their equity (real or imagined), the house becomes an ATM, owning becomes overly desirable, and people borrow their way into foreclosure. The laws in Texas that he considers a hindrance were one of the reasons Texas did not participate in the Great Housing Bubble. In most areas of Texas, there is not foreclosure problem and housing is still affordable.
I would have to think that most “mortgage professionals” as well as realtors in OC have more problems with housing debt then most, since they all were promoting the “prices can only go up” theory during the bubble years.
It’s kind of like asking a convicted felon: Should all criminals be released out on parole?
You should find out how much all of these foreclosure bailouts are costing the average citizen then take that information and your question to the street for an unbiased answer.
Personally, foreclosure relief means a buyer can back out of a legal contract, which is illegal.
Our society is promoting fraud, deceit and dishonesty.
This is definitely a two-fold issue here. I’m a victim of society’s wrong choices. I lost my job due to the economy, have a 30-year fixed loan in which I could pay easily within my salary. But now, I’m going to have to foreclose because jobs are few, as well as now they’ve cut salaries 50% (I made $30/hr, now they offer $16/hr which won’t pay my mortgage, much less my property insurance). And, even with the banks getting all of our taxpayer dollars to help bail them out, they have REFUSED to help me with a loan modification or talk to me because I’m “current” on my mortgage! I’m trying to do the responsible right thing, but they won’t help me PREVENT a foreclosure. So, don’t blame us responsible victims of society’s wrong choices. My only choice is to move to the mid-south where jobs are more plentiful and foreclosures are only 1 in 443,000, as to where California foreclosures are 1 in 53.
“I’m a victim of society’s wrong choices.”
Yeah sure. We collectively put a gun to your head and made you buy the house. If it’s worth it to you to keep the place, then rent out a room to help pay the bills. Just don’t bitch to the rest of the world like you’re the only one having hard times.
what if there wasn’t any govn’t bailout program to begin with; like 10 or 20 years ago? did people like yourself cry about it? Of course not!!! It is this kind of damm thing that encourage our society to be irresponsible for actions that we take!
This is why our govn’t sucks!
Foreclosure relief does not mean anyone is backing out of a contract. Failing to make payments is itself a failure to perform, and the remedy is foreclosure. If banks/investors agree to modify the terms of a mortgage rather than foreclose, then that does not mean anything illegal has occurred. If they are encouraged to do so by the government, or even forced to by some new law, that might be considered poor policy, but it is not necessarily illegal.
As for calculating the cost of “bailouts”, there are government sponsored programs, bank sponsored programs, etc. to take into account. There is also the cost of the foreclosures themselves, including costs to the neighborhoods, the greater community, and to the lender. So, there is not some single number that foreclosure relief is costing to every single individual.
The question about “prolonging the problem” is the real one. If a big OC employer announced that they are shutting down and laying off 50,000 high-paid engineers, accountants, and other professionals, is it better that they lay them all off on Friday afternoon, or shut down their operations over a 5 to 10 year period? Does the latter allow the labor market to absorb those workers over time, or does it just prolong the problem? What if the employer is a big gov’t contractor, and the gov’t agrees to wind down the contracts more slowly instead of canceling them outright? Should everyone refuse the offer?
Josh,
Are you really this naïve or are you just trying to mask the injustice and immoral behaviors our leaders have created?
Not everyone can get relief from foreclosure.
This is an illegal act of prejudice that goes against any basic beliefs and morals.
Corrupt politicians are behind this program.
You have to show proof of being incompetent, have an overly greedy personality and quit paying your mortgage for months to even qualify for relief.
The people who participated in overbidding wars on these homes that have already gone up over 200% were strictly in these transactions for speculation and greed.
They were trying to sell their property for a quick profit before their loans could reset.
These were nothing but incompetent risk takers and we’re now rewarding their behavior to create even more risk takers and more unethical behavior.
These losers need to pay for their own mistakes.
Not everyone who is unable to pay their mortgage was a greedy speculator. Some did have economic setbacks that made them unable to afford their mortgages.
Of course those who planned wisely and had an emergency fund as recommended by experts were less likely to face problems. Also, those who immediately upon suffering the financial set back such as losing a job, took action to face up to the loss of income and to make cuts in their spending, and to asses their ability to continue to make payments and what their options are early on.
Too many people (including loan underwriters, brokers and borrowers) made financial decisions based on the assumption that their current income and also property rate of appreciation would continue indefinately, rather than recognizing that isn’t guaranteed. Before things tipped, when property was rapidly appreciating lenders and borrowers entered into loan contracts that were unsustainable with the assumption that the borrower could re-fi in a couple of years or so because of the rise in equity from appreciation. They assumed it would continue.
Those of us who have been around longer remembered times when the RE market, like the stock market stayed the same or even dropped. Being even a minor student of history could have served as a warning to protect people from counting on what we can now see didn’t happen–continued rapid appreciation allowing the borrower to refi themselves out of terms that they would not be able to sustain.
“when property was rapidly appreciating lenders and borrowers entered into loan contracts that were unsustainable with the assumption that the borrower could re-fi in a couple of years or so because of the rise in equity from appreciation. They assumed it would continue”
You just defined a classic example of speculation.
It’s just like buying a stock or other investment when you assume appreciation will continue.
Any family or speculator that participated in this Ponzi scheme in the years of 2003-2008 was probably involved in a multiple offer bidding wars.
You’re not going to convince me that this is high risk game was based solely on buying a home to live in.
The risks of massively overpaying by upwards of 200% were transacted through some of the most greed driven people alive.
Trying to use the family as a pity shield to mask the true motive of greed involved is not only naive but unacceptable.
Yes. Not everyone who is unable to pay their mortgage was a greedy speculator. BUT we live in a real world, setbacks happen, and you need to be responsible to work out your own problem!!! Don’t use MY tax dollar to bailout your problem!!!! If
I lose my job, can i come over your house to ask for ‘free’ money? Simple concept!
Amen to that Bill! It was greed that created this whole mess, and now our gov’t is rewarding these people.
“If they are encouraged to do so by the government, or even forced to by some new law, that might be considered poor policy, but it is not necessarily illegal.”
Wrong. If the note holder and borrower agree to modify the terms of the note, then fine. If the government unilaterally rewrites the terms of existing notes, and causes a clear and material loss to the note holder, that could very well be illegal. (It is either an ex post facto law, or an indirect taking. Both are relatively nebulous and hard to prove, but there is certainly a non-frivolous argument to be made on either count.)
i would love to see some class action sue against the gov’t for this! Seriously.
Its hard to say, the real issue is unemployment, but with trillions handed out to the big banks I dont see why main street should have to suffer while the rich get their losses covered by the taxpayers.
What problems? Dealeo says all is well….
What’s good for the goose does not seem to be good for the gander. We’d be in a lot better shape now if all those bailed out firms had been allowed to “marketplace adjust” just as foreclosure is doing to so many previous homeowners now.
Californians got into this mess because of GREED and LIEING on home loan applications, so STFU!
It wasn’t just Californians who did this. It’s all over the country. I know plenty of East Coasters who were involved in the mortgage industry and thought they were hot s**t and bought houses up like crazy to flip them. And they did on some of them, borrowed against their loans and are now in foreclosure on those they held onto.
Quit giving handouts and let the market crash. It’s not fair to the honest tax payers to keep bailing people out. The sooner everyone accepts this the quicker the market will recover.
Basically agree Fifi, although I do support lenders being somewhat flexible to work with borrowers to see if some modification can be done to preserve the loan. But without the govt getting involved other than encouraging it.
It seems that the way the RE market has gone that it only makes good sense for lenders to be a bit flexible and creative as well. They lose money (or PMI does or both) if the property goes into foreclosure and especially in the case where there are a lot of them in foreclosure in an area and re-sales are slow.
The lender would be ahead to have the borrower continue as a paying customer, even if they loosened up the terms somewhat. The homeowner/borrower would also be ahead if reasonable accommodation could be done.
It would also seem to make sense for them to discontinue the automatic eviction of tenants when there is a foreclosure. If the tenants are in good standing paying their rent, then that would be income coming in to the lender instead of the property becoming vacant and possibly run down or vandalized or lots of maintenance expenses.
So it just seems like good business sense for lenders to try to work with borrowers to see if they could work out a way so that they don’t have to foreclose. Lower mo pmts are still better than zero mo pmts and a detriorating property in a down mkt.
But this is not the same as the govt handouts but rather a good business decision to make the best of a bad situation.
Sorry but most of these people in foreclosure were overly greedy or were scam artists from the start. Very few honest, normal people - those who see a house as a place to live and not as a lottery ticket - are in foreclosure.
Take our landlord for example. After not making a single mortgage payment for a YEAR (while pocketing our $3,600 rent every month), he filed a bogus bankruptcy petition to try to stop the foreclosure, falsely claiming it as his primary residence, etc.
Sorry but these are what most foreclosure “victims” in 2009 are like. They are deadbeats and scam artists and it’s about time they lost everything and stopped getting government handouts.
“Sorry but these are what most foreclosure “victims” in 2009 are like. They are deadbeats and scam artists and it’s about time they lost everything and stopped getting government handouts.”
I agree with you, but I have no hope for any fairness. After hearing several stories of people bailed out with loan modifications who appear to have lived beyond their means for a long time, I’ve lost faith in the system. Your landlord will probably get a loan mod, and drive a new BMW next time he shows up, laughing in your face.
A new real estate bubble is rising. Look for more “pathetic, clueless homeowners in default” to be bailed out and extended more credit so they can continue with lifestyles they have grown accustomed to and deserve. History repeats itself; didn’t think it would happen so quickly.
Bill good comments, I agree.
Liar Loan: Enjoy your life in California if you believe that everyone out here is irresponsible and someone put a gun to my head to buy my first home. I am a responsible person, was employed at $30/hr, plenty to pay for my $225k condo with a responsible 30-year FIXED loan. So don’t give me your mush about someone putting a gun to my head to buy my home. I bought it out of responsibility and to retire. I’m 53 years old. Isn’t that what we’re supposed to do by this age? Excuse me, but you should re-read my email and get a grip on what is right and wrong. I AM a victim of society’s wrong decisions. Nothing more. Thank you for your comments, but please check out what’s going on in the real world of people like me who are unemployed not by choice, but have to deal with losing our homes now because re-hire salaries are now cut 50% and won’t pay a California mortgage. This State is going down. And I’m moving to live in the real world.
I think I would partly agree and partly disagree. The main disagreement would be with the decision being based on current income being able to make the pmts with no mention of an emergency fund or other provision for a layoff or financial setback.
While the current situation is worse and further reaching than usual so that eventually even people with emergency funds run out, probably if more people had taken steps to prepare for setbacks so that they had a bit of a cushion so could withstand a layoff and loss of income longer, things might not have spread so badly.
Also while I don’t know your situation beyond what you wrote, I don’t notice mention of cutting expenses. There are a lot of things that people faced with a financial setback can do to cut costs, including reducing entertainment expenses, cutting out Starbucks or eating out, buying less expensive meats, or other food stuffs, cutting back on cable or other TV, etc. And if you have any bit of garden space, planting a vegetable garden can cut expenes, provide some excercise and sense of satisfaction as you enjoy the fruits of your labors with garden fresh produce that you grew yourself.
Of course not everyone knows how to drastically cut expenses and it would probably be helpful if schools, adult educ and nonprofits offered tips and even short classes on how to drastically cut expenses so that people can leave within reduced means.
Lin-
I notice that you ignored my suggestion to rent out a room. This tells me you are you using the economy as justification to walk away from your home. You could easily make this thing work, but YOU ARE CHOOSING not to.
Enjoy life in the real world Lin. We the taxpayers will pick up your tab.
Foreclosure is the Only Best Option for Orange County and California.
The thing about this is that it is chasing away any possible buyers from coming into the market.
Lin,
Your not irresponsible. However, life presents many challenges that we cannot predict. Success, job, prosperity, happiness,etc are not guaranteed .
A rational person in your situation will not pay there mortgage and live rent free until the bank tries to foreclose. The money you save on your mortgage will help you get a place when the bank finally forecloses on you.
A lot of people will say this is wrong, but this is survival. You have to take care of yourself. If you believe that you will not get another engineering job that pays $30hr follow these steps.