It’s been reported that over twenty percent of all residential properties with a mortgage are in negative equity, certainly a good indication that the housing market is still in trouble. An expected result of this is that bank foreclosures will increase, A solution that has been recently proposed by state attorneys general and federal regulators involves pushing the country’s biggest mortgage servicers to fork over $20 billion for mortgages where borrowers’ homes are worth less than they owe on them.
The idea behind this proposal, like one similar to it known as Hamp (Home Affordable Modification Program), is to reduce foreclosures and keep homeowners in their homes. The problem is that Hamp failed and borrowers ended up worse off. The evidence did not bear out that forcing the principal write downs would do anything to solve housing market problem. Because of losing jobs or simply taking on more debt than they could afford, debtors would not permanently benefit from Hamp or its newest manifestation.
This $20 billion extortion of banks would not aid the current regulatory process for investigating bank behavior. Agencies such as the Office of the Comptroller of the Currency are already in the process of determining penalties for lenders and compensation for debtors all with a price tag in the millions, as opposed to the billions stated in the ill-fated proposal.
It’s becoming obvious to the American public that the wide array of government programs that are being launched to help the housing market recover are only serving to delay it. This is because homeowners are being led to believe that they can stay in unaffordable homes and inevitable foreclosure is only being postponed. This means that it’s taking longer to for prices to finally hit bottom. Experts hope that when the price of homes does hit bottom that the public will be in a position to start buying again. It has been a winding road because of the unemployment rate, but we will are all very hopeful.
White balancing the desire to fix the housing market while at the same time trying to avoid making the problem worse, federal regulators need to ensure that banks don’t remain the enemy in the process. Simply put, bleeding the banks won’t make them eager to lend in the future.