End of Mortgage Assistance Could Undermine Economic Recovery

A blog post by Mark Price, originally published at Third and State.

Economic forecasters predicting strong economic growth in the next several years rest those hopes on a robust recovery in residential construction. In light of that, The Philadelphia Inquirer has some troubling news this morning in a story about a surge in foreclosure filings over the last 12 months.

The rise in foreclosure filings may be the result of lenders moving forward with long planned foreclosures rather than a worsening of economic conditions. More troubling is the rise in 90-day delinquencies, which could be the result of the end of Pennsylvania's Homeowners Emergency Mortgage Assistance Program (HEMAP). The permanent end to HEMAP also means rising costs for future taxpayers.

Remember when I was for the bailout?

Remember when I said I was for the bailout? I'm still for the bailout that I said I was for. Not so sure that I'm for this bailout, though:

Treasury may capitalize banks by end of October. Buying into the banks makes no sense to me. I know that it's what lots of economists say would make more sense, but the logic of it just doesn't work for me. I think it was Nancy Pelosi who said that people shouldn't think of this is as a "bailout" but a "buy-in." When I heard it, in the early days of the bailout discussion, I thought: "Yeah, that's right!"

But buy in to the banks (and etc)?

I see three problems with buying in to the financial industry:

1) You can't directly improve the terms of mortgages. Whether the government directly bought mortgages or the securities that held them (the former is better), it could change the terms of those mortgages, giving consumers much more stability, insuring a more even flow of money back into those securities and greater stability across the board. It would be great for homeowners and the rest of the economy. If we just give banks some money, well, who knows what they will do?

2) We won't ever get our cash back, even if the securities make money.

Hope Now isn't cause for much hope

New York Times photo of PUP members demonstrating at HOPE NOW event.

In case you aren't quite convinced to follow Dan's suggestion, above, to call Specter, here's a little back-up for him. This whole industry friendly foo-fah going on with the Hope Now Alliance is not cause for much hope. We need something stronger. Yesterday, PUP did an informational picket outside a HOPE NOW event.

In our press release, John Dodds, Director of the Philadelphia Unemployment Project, explained: “With sub prime loans increasing dramatically in Philadelphia in the past three years from 20% in 2004 to 37% in 2006 we need more than a public relations road show to protect families and neighborhoods from this crisis."

Hope Now Alliance Hotline has gained a reputation for causing frustration and minimal help to large numbers of homeowners trying to use their services. The Alliance is heavily dominated by the mortgage industry.

“They didn’t even reach out for local housing counselors until this Tuesday for a large scale event a week away”, said Pam Kennebrew a housing counselor for the Unemployment Information Center. “The phone number for the flyer they sent to local homeowners had a bad phone number to call to get information on the Homeownership Forum. A woman in Las Vegas was getting the calls.”

ABC-6 video report on Hope Now Alliance event in University City on April Fool's Day.

Action News reporter Nydia Han covered the Foreclosure Crisis Committees informational picket. As she reports, no homeowners left the meeting with modified loans.

"More-closure solutions" DN Editorial in favor of a reasonable approach to dealing with foreclosure volume

PUP Members and Clients for Reasonable Workout Program before City Council

The Daily News today editorialized in favor of the demands PUP and the coalition of groups working here to prevent foreclosure made before City Council last week.The editorial board wrote:

Those people on the front lines of the issue - such as ACORN and Philadelphia Unemployment Project- seem to agree that pressure must be put on loan servicers to work more closely with local housing agencies to devise workout agreements with homeowners facing foreclosure.

Lenders and servicers can't work fast enough - or don't want to - to handle large numbers of mortgage workouts. But they need to be pressured to come to the table and work with those on the front lines to help homeowners.

Click read more for a breakdown of our demands!

Lies your mortgage company tells you (when you go to meet with them en masse)

So you've led an angry crowd of homeowners to the doorstep of a mortgage company demanding LOAN MODIFICATIONS NOW that freeze your loans at their teaser rates forever. He says, "No can do. I'm legally bound by investors in the secondary market."

Is that true? It might not be. I don't 100% get it, but I might have made some progress today. Wanna see what I think I found? I know you do. Come along!

Harold Brubaker wrote a pretty good analysis of Collaterallized Debt Obligations today in The Inquirer, which are the means by which many mortgage holders have spread around the risk of sub-prime mortgages. I say "pretty good" because I read it three times today before I started getting my head around it. Then I went to Wikipedia and read about the darn things there.

Let me try to put it my way (which might also be wrong, but what the heck), and, more importantly, point out that these things don't work quite the way that the mortgage industry has described. In other words, a teaser freezer seems much more legally feasible than the Greedniks care to admit.

I got your clarity right here: click read more now!

THE TEASER FREEZER -- I must be missing something: Bush's people are on the right track?

This is sort of surreal. I semi-agree with Bush and Co.

So, right now, The Philadelphia Unemployment Project is trying to organize Countrywide Home Loan borrowers to demand loan modifications such that their introductory interest rate becomes a fixed-rate through the life of the loan. That it's a modification as opposed to a refinance is important, because then the borrower doesn't have to get a bunch of new fees loaded onto them.

See, mortgage holders always have the option to modify loans to easier terms any time they want. They seldom do it, but these are exceptional circumstance.

In summary: LOAN MODS NOW!!!

Unbelievably, the Bush Administration seems to be recommending a much more conservative version of the same thing (which is still pretty good). It's being called a "teaser freezer." Basically, loan modifications such that the borrower gets another couple of years at the teaser-rate. Not ideal, but a lot better than a rash of foreclosures. The White House is even arguing for the teaser-freezer as something that will benefit investors (we agree, but we're surprised to hear them say it).

Find out more after the jump!

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