16% of Mortgages May Go To Foreclosure by 2012
By Wendell Sherk, Missouri Attorney on Dec 30, 2008 in Foreclosure News, Mortgage Reform
It was bad enough that Credit Suisse projected 6.5 million foreclosures over the next five years, back in April. This month they upped the ante to over 8 million potential foreclosures — or about 16% of all mortgages in the United States.
The frightening thing about such projections is that they are (so far) turning out to be fairly accurate. In this case, the projection indicates that 2008 was actually the peak year for subprime foreclosures. The next few years will be the heyday for foreclosing on mortgages we hoped would come through the current crisis: Alt-A and prime mortgages. As the Calculated Risk commentator puts it: We’re all subprime now!
The only current solution the government and mortgage industry have been pushing is “loss mitigation” where the mortgage servicer modifies some of the loan terms to make it easier for the consumer to save their home. Unfortunately, as is noted by my friend, South Carolina attorney Dana Wilkinson, the re-default rate among modified mortgages is depressingly high. This could be because mortgage companies are absolutely swamped with loss mitigation requests by consumers. Or because they have been laying off staff to try to save money. Or maybe the deals they’re offering just are not good enough.
It’s probably some combination of all of the above. This is not news to consumer lawyers — on either side of this mess. In one of our cases, the “deal” for an elderly woman on fixed income was to re-work her mortgage (to cure missed payments) with the result that her monthly payment was almost exactly her entire fixed income. As long as she did not feed herself, heat or light her home, or buy anything, she might keep the house. What a deal!
More than a year ago I asked a colleague who forecloses on homes why I was seeing mortgage work-outs bound to fail like this. I had two theories: (1) The industry was doing this on purpose so we’d all see that loss mitigation — traditionally a neglected, unprofitable stepchild of the servicer industry — would not work and therefore stop annoying them; or (2) The companies were setting quotas for employees so if your workout application is on the top of the pile for an overworked employee today, then you get a deal today — whether or not it will work. I still have these theories. My colleague could only agree that loss mitigation was not working the way it is supposed to work.
The simple reality: “voluntary” efforts to stem the foreclosure tide are public relations. That’s it, PR. Without systematic change that can be initiated by the consumer and compelled by an independent third-party — like a bankruptcy judge — things won’t change seriously.
Relying on the financially-crippled servicer industry which is caught between its duties to investors, to federal regulators, and to consumers to negotiate deals on a case-by-case basis has gotten us where we are today. With nearly 50% of deals falling through to default again. And will get us to where we’re going tomorrow. Eight million — 16% of all homes with debt in — foreclosures.
Sometimes, the market can’t fix everything.
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