Foreclosures: Fast road to more problems or a way to stabilize the housing market?
Why not let foreclosures run their course so the home market can reset to a sustainable level -- a sentiment often expressed on L.A. Land comment boards -- was among questions asked of Shaun Donovan, secretary of the Housing and Urban Development Department, Thursday at the National Assn. of Real Estate Editors conference in Washington. His keynote address came on the heels of President Obama's announcement of major changes in rules governing financial institutions.
"Foreclosures were a part of the problem," Donovan said, "rather than a path to a solution."
Taking no action and allowing more foreclosures to occur "wasn’t going to lead to a bottom but to a much more substantial decline," he said.
Programs underway to help homeowners who are not yet in arrears refinance their loans or to modify the loans of borrowers who are in default are just part of the government's plans to stabilize the housing market. Also in the works as part of the president's overhaul plans are simpler loan terms, requiring originators to keep a 5% stake in their mortgages and increased efforts to stop fraud, he said.
The HUD secretary acknowledged government efforts have their limits.
"Clearly some families are in homes they can’t afford," Donovan said. "We can’t stop every foreclosure."
OK, L.A. Land you heard the man. Opinions?
--Lauren Beale, reporting from Washington
Thoughts? Comments?
Photo: HUD Secretary Shaun Donovan. Credit: Melissa Golden / Bloomberg News
You want my opinion? This man is a moron and it is disgusting to me that a person like this can have such a position. Another word for moron is politician and that is what he is. How does he know that it would've been much worse if we let foreclosures take their course? What proof does he have?
Foreclosures are definitely part of the solution. They are a natural product of an out of whack system. Why can't these idiots understand this. Foreclosures are not the problem. Just like how sometimes forrest fires are necessary to clean up overgrown forrest. Foreclosures are cleaning up the financial mess that was created.
Posted by: Lou | June 23, 2009 at 02:40 PM
Back in October I made a transition from mortgage consultant to doing loan mods, learned along the way the difference between negotiating with a lender thru their loss mitigation dept. and negotiating by threatening a law suit as a result of finding RESPA violations by way of a forensic audit on loan files, my motives were to somehow help borrowers that were hoodwinked by my industry to fight back and right some wrongs, and what I found was that these poor borrowers thought they can use the "Obama" plan to stick it to the lenders as vengence, well, some of the people that I helped modify went right back into default, so looking at it in hindsight all it did was delayed the bottom from getting there and kept folks like Laker, move2CA and others from getting a home.
Sorry guys, it screwed my chances as well, but thats OK, that time is coming perhaps sooner than we think.
Posted by: Nelcisco | June 23, 2009 at 02:45 PM
The government's attempt in controlling the market - almost always a futile endeavor - and to keep houses worth high dollar prices will ironically result in the dollar being worth less.
Ha ha!
The market always laughs last.
Posted by: amir | June 23, 2009 at 04:37 PM
** "Clearly some families are in homes they can’t afford," Donovan said. **
Yes, Einstein, that's right.
And it's pretty easy to calculate. Every family that is facing foreclosure is, by definition, in a home they cannot afford.
That doesn't mean they're bad people. Or greedy people. Or stupid people. Sure, some of them are, but it simply means they cannot their home payments.
When I bought my home (not here in SoCal, and not recently), I had no expectation that if I lost my job, if my house payments went up, if my house lost value, etc.. that there would be a safety net for me. That isn't how it works.
At least that isn't how it used to work.
I went in knowing the risks, because I made the effort to educate myself. I also had a backup plan if the proverbial doo-doo hit the fan.
Anyway, rather than placing moral judgments on those are facing foreclosure, or placing a moral judgment on the right to kick those people out of their home that they're not paying for, we should just let things run their course.
Otherwise we're setting a terrible precedent, we're prolonging the inevitable, and we're doomed to repeat this whole trainwreck 25 years from now.
The ones hoping we just let things run their course are the ones who didn't make a bad loan fueled by greed (banks) or who didn't buy a house they might not be able to pay for (foreclosure folks).
Posted by: Dan | June 23, 2009 at 05:05 PM
lou and amir have hit the nail on it's head....
Posted by: anon | June 23, 2009 at 05:28 PM
Letting foreclosures run their course could result in a second and more complete collapse of consumer confidence and a brand-new middle class of seriously pissed-off ponies. There are too many people out there (maybe another 4-5 million) with 140% LTVs who were promised that they could refi themselves before their 1% teaser rates reset. Those interest-only, NINA option ARMs were toxic products when they were shipped to consumers. Rather than letting foreclosures run their course, let's wipe out the loan profiteers with class action and qui tam suits, then give the proceeds to everyone who took out a subprime loan..
Posted by: Barrett Bates | June 23, 2009 at 07:34 PM
"Forensic Audits" are a load of nothing to these lenders. I have filed 4 lawsuits to date, with 4 more in the pipeline. Banks will listen to nothing but the almighty dollar, and lawsuits cost them $$$. It may cost my client just a little, but for every $1000 my clients pay, the banks are paying at least $15,000. Yes, I am going to stick it to the banks. I only pray that my clients allow me to go to trial and reject any settlement offers the bank may propose. 3 years of litigation and $400,000 in legal fees later, the bank will know how it feels to screw up a mortgage so bad that they may actually face punitive damages on top of the borrowers general damages. At that point, they only wished they modified the loan.
Posted by: TrojanDLA | June 23, 2009 at 08:23 PM
This guy is a total moron, and it's not surprising that the world is in such a financial mess with guys like this in positions of power. He is absolutely delusional. Look at him. He even looks stupid. Totally clueless. What a joke.
Posted by: DT | June 23, 2009 at 08:54 PM
What is frustrating is the confidence of officials and experts, the same people who say that no one foresaw the present situation.
As you report, he says: Taking no action and allowing more foreclosures to occur "wasn’t going to lead to a bottom but to a much more substantial decline."
How does he know what the "bottom" should be? Perhaps, substantial decline is the true and appropriate bottom.
He failed to see the absurdity of the top. Why should he know what the bottom should be?
Posted by: LA-renter | June 23, 2009 at 09:12 PM
I have mixed emotions on this issue. But, generally, I don't think foreclosures should be allowed to move unchecked. What the proponents of 'hands off' scenarios fail to see is that if the government fails to act the avalanche of destruction may very well sweep them away too. Don't think you are immune because you have fared well now. If we let market forces move unchecked the market may have no room for any of you.
But as I said, my emotions are mixed. I hate all the scum that bought houses they could ill afford. And all the bums who used their houses as ATMs so they could buy jumbo LCDs. But I am not willing to burn the country down so that I can prove that I was right about the bubble and I'm not anxious to see rioting in the streets if hundreds of thousands more are left homeless and jobless. What is the purpose of being able to buy a property at a bargain if the bargain is in the center of chaos?
Posted by: WillyWanker | June 24, 2009 at 08:17 AM
Off the subject.
U.S. Code Title 12 Chapter 29 Section 2803 "Maintence of Records and Public Disclosure" (6) loan application must be filed one year after closing and on file for three years. SHOW ME WHERE I LIED!
On the subject.
"Foreclosures were a part of the problem," Donovan said, "rather than a path to a solution."
You get paid for that knowledge?
Posted by: Steve | June 24, 2009 at 10:07 AM
He looks like he should be standing in line for the "Transformers" movie.
Posted by: Kathy | June 24, 2009 at 11:59 AM
Up is Down. Down is Up.
Left is Right. Right is Left.
Forclosures are the problem.
These moron beaurocrats live in some kind of Bizzaro opposite world. Unfortunately, they are appointed, so there is no way to recall them.
Recessions and foreclosures, as mentioned by Lou, purge the market of inefficiencies and overleveradged risk-takers.
The market always reverts to the mean.
Just frustrating.
Posted by: El Patron | June 24, 2009 at 01:59 PM
@TrojanDLA
Does Caveat Emptor mean anything anymore?
Yes the banks were predatory. But why should people sue when they signed a contract? Can people not pay a few hundred to a lawyer or CPA to make sure they can afford a house? That would be such a nominal amount to pay when hundreds of thousands of dollars are on the line. To me these lawsuits are frivolous and waste more time and money than a foreclosure does in the long run. No one can take it like a man anymore.
Why not sue a car dealership for a salesman luring you into buying a car and making money on the financing? That's what a mortgage broker is for the banks, a salesman.
Posted by: Kaz | June 24, 2009 at 03:47 PM
Willy,
Burning the country down is exactly what I see them doing now. And what's infuriating is that the politicians seem to be doing it just to stay in the lime-light, while the bankers are pushing them to do it so they can build a neo-feudal empire from a nation of formerly free men.
Posted by: dog-walker | June 24, 2009 at 04:02 PM
Dear WillyWanker:
"What is the purpose of being able to buy a property at a bargain if the bargain is in the center of chaos?"
You miss the point completely. We don't want a BARGAIN. We want a realistic price. We want the markets to return to NORMAL prices (i.e. median home price = 3X median income)
Posted by: Elliot McMaster | June 24, 2009 at 11:44 PM
>>Taking no action and allowing more foreclosures to occur "wasn’t going to lead to a bottom but to a much more substantial decline," he said.<<
Is this guy actually serious, or is he such a buffoon that he doesn't get that reaching a true bottom ENTAILS allowing price declines?
It seems what he WANTS to say is that he would rather avoid reaching a bottom and instead artificially prop up housing prices at bubble levels. Fortunately, there is no way the government can do so. They simply don't have the resources to stop the free fall.
It's depressing that Obama seems to have repopulated HUD with the same type of incompitent real estate industry hacks that allowed us to get in this untenable situation in the first place.
Posted by: srla | June 24, 2009 at 11:50 PM
You know who's paying the price here? Me. And people like me.
I want to buy a home. I don't want it to depreciate 30% when I buy it. That doesn't mean I'm looking for a bargain; I just want to see some sign that I won't be upside down 6 months after I take out a mortgage.
Everytime the government steps in with some hairbrained scheme to "slow the decline," my plans get put on hold for that much longer because now I have to wait for the new temporary taxpayer-funded relief to run out before we can move back along the path to finding the normal relationship between home prices and incomes.
Posted by: JayC | June 25, 2009 at 02:19 PM