Archive for the ‘Bailouts’ Category

Reaction to President Obama’s Plan to Slow Foreclosures

President Barack Obama
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After reading about President Obama’s plan to cure the foreclosure epidemic, I wish I could say, “It’s about time!” For far too long, the federal government here in the United States has been focused on bailing out Wall Street rather than Main Street. I was hoping President Obama would reverse the trend. Unfortunately, his plan looks like more of the same.

Obama is setting aside $75 billion… of whose money? According to a treasury official, $50 billion will come from the remaining $350 billion in Troubled Asset Relief Program funds, and $25 billion will come from Fannie Mae and Freddie Mac. This is taxpayers’ money – Main Street money.

And where is that money ultimately ending up? To “subsidize” lenders and investors – that’s Wall Street – for doing what they need to be doing anyway – modifying loans.

The fact is that loan modification is a good business decision for lenders and investors. According to various estimates, lenders stand to lose an average of about $50,000 to $80,000 per foreclosure. A loan modification does not wipe out a lender’s profit. To the contrary, it helps lenders avoid taking a huge loss on foreclosure while at the same time allowing them to keep a performing asset on their books. As a result of a loan modification, the lender keeps collecting interest. The loan remains profitable, albeit less profitable than it would have been had the homeowner been able to afford the originally agreed-upon payments, but still profitable. So why are taxpayers going to subsidize lenders?

Last Sunday (February 15, 2009) 60 Minutes ran a segment entitled “World of Trouble,” in which investigative reporter Scott Pelley interviewed Paul Bishop, a former loan originator for World Savings Bank which, at the time, was the second largest savings and loan. Bishop reported witnessing rampant fraud throughout the organization in the origination and approval of mortgage loan. And as I have been reporting over the past two years, what was going on at World Savings Bank was the rule rather than the exception in the mortgage lending industry. Everyone knew what was going on. The few people who tried to stop it were silenced and either demoted or fired.

Mortgage lenders were well aware that they were approving mortgage loans that never should have been approved in the first place. Loan originators and banks were raking in profits leading up to the mortgage meltdown, and they weren’t exactly spreading the wealth to American taxpayers. Now that the time has come for them to pay the price for irresponsible lending practices, they are calling on the American taxpayer to subsidize their losses? This is absurd.

Don’t get me wrong. I applaud President Obama for focusing efforts on bringing relief to Main Street, but the government shouldn’t be using Main Street money to do it. I think a more prudent move would be in the form of an executive order demanding that banks modify loans to a level of affordability and end foreclosures until they have cleaned up the mess that they themselves have contributed so much to creating.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Los Angeles Councilmember Richard Alarcón Says Bank Divestiture can Stop Foreclosure

Los Angeles City Hall.
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A lot of serious solutions are now being offered to help distressed homeowners stay in their homes, and in the process, help the struggling national and global economy. Yesterday, I told you about efforts underway in Washington D.C. by Democrats and Republicans alike to infuse capital into the solution equation. Today, I’m happy to highlight what I think is another fantastic opportunity to quickly and appropriately help solve the housing crisis and keep families in their homes.

Los Angeles City Councilmember Richard Alarcón yesterday introduced a motion aimed at decreasing the devastating affects of foreclosures in Los Angeles, California. The motion, which can be viewed here as a PDF file, instructs the City of Los Angeles to explore the divestiture of its $25 billion portfolio in banking and other financial institutions that fail to cooperate with foreclosure prevention efforts. These efforts, according to Councilmember Alarcón, include:

  • Temporary moratoriums on foreclosures
  • Renegotiation of mortgage principles to reflect current values
  • Good faith negotiations with homeowners

As Alarcón pointed out when he made yesterday’s motion, the foreclosure crisis has hit every corner of the United States, and bold steps are required to reduce the number of foreclosures and stabilize hemorrhaging  neighborhoods. His motion would call for a report exploring which banks are failing to cooperate with families facing foreclosure, and call on the City to remove investments with those banks.

Alarcon, it turns out, is no stranger to divestiture initiatives and has been a leader in combating foreclosures in Los Angeles. Over 10 years ago, in July of 1998, Councilmember Alarcón introduced a motion to have the City of Los Angeles divest all funds from Swiss banks in support of the efforts of the Holocaust victims and their heirs who sought restitution from the Swiss government and banks for money and assets confiscated during WWII. As a result, negotiations involving the banks and the World Jewish Congress ultimately resulted in a settlement of $1.25 billion the following month.

On the foreclosure front, just last Tuesday (January 27), Alarcón introduced a motion instructing the Los Angeles Housing Department, the City’s Community Redevelopment Agency, and other applicable agencies to develop a foreclosure prevention strategy, and to identify $1.5 million in funds to implement the program.

“Banks and financial institutes need to know that if they are not willing to work with homeowners who come to them in good faith to renegotiate their loans, we have no interest in doing business with those banks,” says Alarcón.

In Alarcón’s Council District Seven there are over 1,000 properties facing foreclosure within one month or are currently in foreclosure. And, according  to RealtyTrac, more than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007. Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level.

I tip my hat to Councilmember Alarcón for thinking outside the box and applying pressure where it’s most needed.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Congressional Leaders Differ on How to Help Distressed Homeowners

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There’s an interesting article in today’s New York Times about Congress’ renewed vigor to step up to the plate and solve the foreclosure crisis. Republicans and Democrats alike are “competing,” says the Times’ Edmund Andrews, to bail out struggling homeowners.

Having recently spent billions of dollars rescuing banks and insurance companies, lawmakers on both sides of the isle are now attempting to steer President Obama’s economic stimulus proposal toward what many of us have known all along to be at the root of the problem: the housing market.

Republicans in the U.S. Senate think the way to solve the crisis is to offer up to $300 billion in mortgage-related subsidies to attract new homebuyers, while Democrats want to spend up to $50 billion on programs aimed at reducing foreclosures. Whichever side prevails, something needs to be done soon, before another wave of homeowners lose their most valued and prized possession.

For more, read Both Parties Move to Aid Homeowners.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

What’s Good for Homeowners Is Good for America

Sign Of The Times - Foreclosure
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Over the past year or so, the American homeowner has taken it on the chin-a one-two-three punch that has knocked many out of their homes and threatens to do the same to millions more. First, the housing bubble burst, stripping billions in equity. Tight credit landed the next blow, preventing homeowners from refinancing their way out of trouble. Finally, a severe economic downturn has led to record job losses, making it difficult or impossible for many families to keep their homes even if they otherwise would be able to negotiate a loan modification with their lender.

If American homeowners weren’t down for the count just yet, some of their fellow citizens are lining up to stomp them into the dirt. These folks, no doubt consisting of those who have been fortunate enough to dodge the foreclosure bullet so far, are calling for the end of the bailouts-specifically for the end of any bailouts for homeowners. These are the people who post comments on blogs and discussion forums every day claiming that homeowners who are drowning in debt shouldn’t be “rewarded” with special deals.

What most of those who are clamoring for an end to homeowner bailouts, such as loan modifications, fail to realize is that we are all in this together. What’s good for homeowners is good for America.

Here’s why:

  • Foreclosures reduce property values for everyone in the neighborhood.
  • Lower property values usually mean states, counties, and towns have less money to fund education and other services.
  • Lower property values also lead to lower commissions for real estate agents and less business for everyone who makes a living off of the real estate industry.
  • Foreclosures leave vacant homes that tend to attract vandals, vagrants, and other criminal types who either set up shop in the homes or use the homes to commit real estate or mortgage fraud.
  • Rising default rates convince lenders to tighten credit, making it more difficult and costly to borrow money.
  • As families lose their homes, they have less money to spend on products and services, lowering demand and increasing unemployment.
  • The mass exodus of families from an area destabilizes the neighborhood, often attracting transient (just passing through) populations. This makes it difficult for schools and other township agencies to plan for development.

Foreclosures feed on foreclosures as the repercussions from one foreclosure ripple through the economy.

Don’t be fooled-when a family loses its home, everyone in the neighborhood becomes a victim of foreclosure. This is why it is so important for us to work together, as Americans have traditionally done in the face of crises, to stem the tide of foreclosures and stabilize the housing market. We need to stop worrying about homeowners who have gotten breaks that seem unfair and begin to realize that we have a lot more to lose if homeowners across America are not given the breaks they need.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)