Friday, December 11, 2009

Burning down a recovery?

More evidence of attempting to strong-arm the housing sector back onto solid footing. Again, does this sound like behavior one would expect in a nascent recovery? Remember, this comes on the heels of publishing “good” and “bad” lender lists and federal swat teams:

President Barack Obama will meet with chief executives of major banks on Monday and is expected to urge them face-to-face to lend more money to help promote economic recovery, banking sources tell POLITICO.

The lending issue irks some in the industry. “The White House’s political people like [senior adviser David] Axelrod tell us to lend more,” said one banking official. “But the regulators are saying the exact opposite. They’re saying, ramp up your capital ratios, and if you see default risk on the horizon, cut back on lending.”

And here is Ed Smith Jr., president of the California Mortgage Brokers Association:

I believe the Home Affordable Mortgage Program (aimed at encouraging lenders to modify the terms of their loans) was a good attempt at giving people a real chance to keep their homes. But there’s been a dismal response from lenders. They’re not modifying enough loans to address the foreclosures currently on the market, let alone doing anything about the shadow market.

A lot of lenders won’t deal with you unless you’re already in default. So people get pushed into default, which impairs their credit for years. They lose their home, get pushed into rentals and lose the opportunity to pass on their wealth to the next generation. This is especially true in the minority population, where home equity is often the principal source of wealth.

A colleague of ours at work attempted recently to refinance her house with her current lender. She was informed over the phone that she made too much money and that she was not delinquent in any of her payments and thus could not qualify for a re-fi.

She explained to the lender that she was not attempting to re-fi under the HAM Program as a distressed homeowner rather a standard re-fi to take advantage of the low interest rates. The lender sent her a letter in the mail a short time later saying that she did not qualify for her “hardship assistance request”. However, they’d be more than happy to help her sell her home if that’s what she desired.

(Incidentally, this particular lending institution would be on the Fed’s “good” list as per a graphic showing which lending institutions had made the most permanent loan modifications to distressed borrowers which was displayed in the Dec. 1st print version of the San Diego Union-Tribune but, unfortunately, not in the electronic version).

So, connecting the dots, we have a situation created by the Feds whereby they are intimidating lenders into making permanent loan modifications with distressed and/or defaulted mortgages that may or may not be a good risk while at the same time, are warned not to do so by their regulators.

This comes at the expense of homeowners who are on stable financial ground and those who aren’t, necessarily, and are teetering on the edge of defaulting, a condition that becomes more and more likely as lending institutions can’t be bothered with anything but bad risk cases because they are at once being bullyed by and attempting to seek favor with the Treasury Dept.

Again, we have to ask the question: does this sound like a formula to enable a robust housing recovery? It doesn’t take a housing expert like David Axelrod to realize we are repeating many of the same mistakes that led to this meltdown in the first place.

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