BluefoxToday blog : Mortgage foreclosure rescue plans ineffective

Mortgage foreclosure rescue plans ineffective

The government has tried over the last year or so quite a few different ways to stem the flood of new foreclosures. The rework idea hasn't fared too well, however, as the numbers keep going up at a steady pace. The programs that have come out of Washington have been voluntary on the mortgage industry with some financial incentives thrown in but that evidently hasn't been enough to make a meaningful impact on the problem. The previous belief that a foreclosure is very expensive to the mortgage holder doesn't seem to be valid any more. If it were then these plans would've worked out much better.

The main sticking point appears to be the securitization of mortgages, the rules governing them and those who own these securities. The securitization, in simple terms, means that individual loans were first combined into pools of various sizes which then were sold to trusts and investors would buy a slice of the trust. That's how pension funds, central banks and investment firms got involved in the mortgage business.

To modify any number of these loans mortgage servicers would usually need two-thirds of the investors to go along with it. That is clearly easier said than done. Moreover, in a given trust reworked paper would naturally cause some investors to incur worse losses than others. Another tough nut to crack. And the servicers themselves frequently make more money in foreclosure, so their enthusiasm toward modification is minimal.

For the workouts to make more headway something obviously has to change. It points toward adjustments to the rules and regulations governing these trusts and/or the foreclosure process itself. Whatever is done will certainly set off loud howling in some circles, predictably a host of lawsuits, too.

Therefore, to arrest the slide in property values should be right on top of the agenda in any discussion. The home and its value is the collateral that all these home loans lean on. Owner-occupied homes will keep price levels pretty steady in any neighborhood and that ought to be encouraged. Foreclosures, on the other hand, have the opposite effect and hurt everybody. In the long-term even investors would likely benefit more from a market that is stable, with a price structure that is sustainable. But it looks like they are, the investors, for now at least, taking the short-term approach to this.  



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 6 commentsEsko Kiuru • October 28 2008 10:01PM


Good points on the rework of paperwork.  However, isn't the underlying problem owners being able to make the payments? If owners can't make payments, then it doesn't matter how you arrange the deck chairs on the Titanic, its going down.

The way to stem the tide of foreclosures is to stimulate job creation and growth.  And there's only one proven way to make that happen.  But that's a political discussion for another thread and day.


Posted by Mick Michaud, Your Texas Lifestyle is Here! (Distinctly Texas Lifestyle Properties, LLC Office:682/498-3107) almost 10 years ago

Esko...I really think that mandetory, binding, 3rd party loan workouts are the only way to stop the foreclosures in the short term.

Posted by Richard Sweum (1st Security Bank) almost 10 years ago

Esko, I have seen a number of rescue plans over the last few months.  Most of these plans have been more for show then anything else.  Some times the best rescue plan is to just let the market run its course, instead of providing false hope like they have been doing.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago


Homeowners unable to make mortgage payments is what these plans are trying to address.

Posted by Esko Kiuru almost 10 years ago


That appears to be the only way right now.

Posted by Esko Kiuru almost 10 years ago


I'm afraid if the market alone is going to sort this out it's going get real ugly.

Posted by Esko Kiuru almost 10 years ago