Foreclosure Prevention Efforts: Hit or Miss?
I recently attended a Chicago Fed conference on “Saving the American Dream.” The agenda was primarily designed for third-party organizations who assist homeowners in preventing foreclosure.
I was fortunate enough to sit between a state banking regulator and a HUD official from the Philadelphia office. HUD had taken quite a bit of criticism through the course of the day, as many of the attendees and panelists referred to the overwhelming failure of FHA programs to prevent foreclosure for homeowners who are delinquent.
The HUD guy and I kept joking during the day about the fact that he was scheduled to speak late in thd day: “Do I really want to go up there?”
Once he took the podium and the formalities were addressed, he said something that really encompassed the issues of the day:
“We’ve got capacity problems on all fronts.”
There’s a management philosophy called the Theory of Constraints. According to Wikipedia, the fundamental precept of this philosophy is “…every organization has - at any given point in time - at least one constraint which limits the system’s performance relative to its goal.”
Currently, the chief constraint for the loss mitigation industry is capacity. There aren’t enough bodies to handle all of the files that need attention. And, there aren’t enough revenues coming in to the mortgage servicers to hire enough staff to handle the volume. Responsible, sensible foreclosure prevention requires that loss mitigation be handled on a case-by-case basis.
The remedy du jour in the mortgage industry is blanket loan modifications. Unfortunately, this approach is unfair to both the borrower and the investor. The investor may be giving up more than necessary. And, the borrower may not be getting the terms they need. One tiny detail that seems to escape the mortgage industry (and the politicians that oversee it) is sustainability. It doesn’t do anyone any good whatsoever to simply “kick the can down the road.” Much of what’s being hailed as “innovative foreclosure prevention” is nothing more than a bigger band-aid.
Oh, and by the way, while capacity is a huge problem in the industry, they’re missing the forest for the trees. The chief constraint is NOT capacity… I’ll have to address that in a later post.
Anyone looking for SUSTAINABLE, long-term solution to foreclosure prevention would be wise to get some foreclosure help, as opposed to relying on their lender, or someone from the government to “counsel” them.
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