A Record Number Of Foreclosures And The Options For Preventing Further Damage

ap070814048602In what’s becoming a monthly ritual, today’s housing data report from RealtyTrac revealed that foreclosures continue to pile up. According to the report, foreclosures in June were up 4.57 percent from the previous month and 33 percent compared with the same period last year. During the first six months of 2009, “a record 1.53 million properties were in the foreclosure process.” One in 84 homes received a foreclosure notice in that period.

It’s no secret that the Obama administration’s plan to spur mortgage modifications is sputtering, with lenders either reluctant or simply unable to keep up with the modification demand. As the Wall Street Journal reported today, some servicers have ramped up their modification programs, but others are lagging behind, and even those that are doing the most can’t keep up with the flood of borrowers facing financial difficulties. “The Obama plan doesn’t seem to be having a significant effect,” said Mark Zandi of Moody’s “Foreclosures will continue to rise through the end of the year.”

So what can be done? In recent days, a variety of plans have been floated — both by the administration and Congress — for slowing the rate of foreclosures. They are detailed below:

Plan How It Works What’s The Deal?
Right-to-rent Delinquent homeowners would be given the option of renting their homes at market value for a set period of time. Gives lenders a big incentive to modify loans, because they don’t want to become landlords.
Mandatory mediation Mandates that lenders meet directly with homeowners, attorneys, and housing advocates before finalizing foreclosure, to try and come to an agreement that allows borrowers to keep their homes. Similar programs in Philadelphia and Connecticut have proven very successful, with a majority of homeowners avoiding foreclosure.
TARP dividends Money that the government receives from TARP recipients paying dividends would be redirected toward programs for struggling borrowers and low-income renters. Rep. Barney Frank (D-MA) is leading the initiative. The White House supports the program’s goals, but wants a different funding mechanism.
Unemployed deferral Would allow unemployed homeowners to defer mortgage payments for an unspecified period. Banks and investors have absolutely no reason to support this plan, unless Treasury literally covers missed payments.

None of these plans will be a panacea for the housing problem, and they all have their respective strengths and weaknesses, but it’s absolutely critical that a fix for the foreclosure problem be found.