Before I get to the meat of this post, I want to talk a bit about the nature of this particular blog, "On Maters of Family, Child Protection and Home."
Beside my work in areas of general civil and labor/employment alternative dispute resolution, see On Being a Neutral, and On New Mexico Labor and Employment Law, I am also increasingly engaged in New Mexico domestic relations, child protection and foreclosure matters nowadays. "Domestic relations, child protection and foreclosure matters" may seem to you like an odd cast of characters to put together on your primarily labor-related resume, or to put together in one blog. As to the resume, these are "hot" areas in mediation and my practice has necessarily evolved to go where the business is. As to the blog, however, to me these areas are all connected by a common theme: what we do the rest of our day, away from work, e.g., home and family life. Also, I frankly just had to cut myself off at the third blog!
So, by way of that introduction, the following is my first post on matters of "home and heart," and what better inaugural topic than the present foreclosure crisis?
So, by way of that introduction, the following is my first post on matters of "home and heart," and what better inaugural topic than the present foreclosure crisis?
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The Albuquerque Journal today had three very interesting articles in the field of mortgage crisis and foreclosures.
The first, "Federal Agencies Pitch Tougher Mortgage Rules," is a Journal and Wire Report that discusses a proposal by a group of federal agencies, including the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, to require a 20 percent down-payment to be eligible for the best interest rates. These loans, being deemed more safe, could then be sold and pooled as junk mortgages have been in recent years. However, lenders of the unsafe loans would be required to invest in those loans, rather than selling them off.
Both aspects of the proposed regulations are intended to create incentives for lenders to avoid making sketchy loans, as has been occurring in the past. Opponents are worried, however, that the resulting (or continued, I say) credit crunch would put home ownership out of reach of many working class families, and perhaps middle class families as well, particularly as Freddie Mac and Fannie Mae are wound down.
Working in the trenches of foreclosure mediation, I am not sure that is such a bad thing. Perhaps we as a society have gone overboard in promoting individual home ownership, such that people who cannot afford homes have gotten in over their head, as the federal government became the biggest lender/guarantor of home loans. (As a lengthy aside, in my domestic relations mediation and pro bono money due complaints, I also see much the same thing having happened regarding college educations, and the aggressive promotion of student loans and open admissions by colleges and universities. Many of these people were not even good candidates for college in the first place, and now they are still not particularly employable yet burdened by student loans they will never realistically be able to pay back.)
The second interesting bit of news in today's ABQ Journal was "Lenders May be Forced to Expand Short Sales," by Jim Puzzanghera and Alejandro Lazo of the Los Angeles Times. There the authors advise that the five biggie mortgage lenders recently targeted by all 50 state Attorneys General and the federal Department of Justice (Bank of America, JP Morgan, Wells Fargo, Citigroup, and Ally Financial), have met with the state and federal officials to discuss the banks allowing more short sales without deficiency judgments, "in addition to forcing mortgage servicers to reduce the amount some homeowners own on their loans."
Both of these measures address the drastic problem of homeowners who are "underwater" in their loan--e.g., they owe more under the mortgage than the home is actually worth on the market. It is believed these measures can help stabilize the real estate market by clearing out the backlog of defaulted mortgages poised on foreclosure, and also provide a more economical and efficient way to dispose of the distressed properties. In general, I am all for stabilizing the home real estate market, and think more frequent use of short sales without the threat of deficiency judgments can be a good thing. However, as to cutting down the principal owed, I am called to mind the comments of one of the bank attorneys who comes before me regularly: that the bank loaned and is out of pocket for the full principal, not the market value, even if it turned out to be a poor investment decision for the homeowner.
What is the right answer? I don't know, but I do think it's a good thing we are discussing all options, particularly in light of the last piece of news. In "1.8 Million Troubled Homes Still Skew Market," Alejandro Lazo with the L.A. Times discusses the vast "shadow inventory" of houses not yet on the market. Although this is admittedly a decline from the estimated 2 million units in January of last year, it is still a massive blockage on the market, and preventing any foreseeable recovery. "Additionally, CoreLogic estimates that there are nearly 2 million" more homes likely to fall into foreclosure in the near future because they "are more than 50 percent 'underwater.'"
If you are interested in foreclosure mediation services (residential or commercial), please contact Pilar Vaile, P.C. at (505) 247-0802, or info@pilarvailepc.com.
