Barry Ritholtz, who pens the excellent economy news site The Big Picture was on NPR’s “All Things Considered” Friday with some insights on the foreclosure “crisis.”
Financial Blogger On Ethics Of Mortgage Modification
A full transcript is available at the link above. Here’s an excerpt.
SIEGEL: But what’s the risk of providing some kind of mortgage relief, whether it’s a suspension of full monthly payments, or whether it’s a reduction in the principal for somebody whose house plummeted in value and who is also unemployed and really will have a very hard time making the payments regardless?
Mr. RITHOLTZ: From a broad perspective, again, you’re keeping them in a house that they can’t afford, and they’d be much better off going to a place that leaves them a little spare change in their pocket, as opposed to just draining everything they have to make those payments.
Secondly, if these banks have their balance sheets just festooned with bad loans, we’re not allowing them or not forcing them to do what they’re supposed to do, which is take the write-down, get it off their books, free up some capital and move forward as a healthy lending institution.
Barry also wrote some additional thoughts on this issue on his site last week: More Foreclosures, Please…
It may sound counter-intuitive, but the best thing for the nation (but not necessarily the banks) is to allow the foreclosure process to proceed unimpeded. We need more, not less foreclosures.
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We should allow the real estate market to experience a healthy price normalization process. Even though home prices have fallen dramatically, they have yet to reach their historical means relative to income or the cost of renting. This is to say nothing of the usual careening past the median towards under-valuation that typically follows a massive mis-allocation of capital.
I agree with Barry 100%.
Also related: with all the foreclosure prevention and delay programs going on, it’s hard not to feel like you’re basically a chump if you pay your mortgage. Many stay at home for free as banks defer evictions
It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their home in Perris, Calif.
It’s been 11 months since the notice got slapped on their front door, warning it would be sold at auction.
A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.
Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.
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Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.