There Are Solutions to the Foreclosure Problem
There are many solutions to the foreclosure problem but unfortunately Washington has not seriously weighed the pros and cons of the ideas that are being put forth. As such there is no noticeable progress.
A large number of residential houses have gone underwater – the loans being bigger than the value of the house. This has happened because of the dramatic fall in property prices. Many borrowers are now tempted to walk away from the unit abandoning it, as it is not worth the fight. There is also another strong opinion that considering the present mood of the market the banks are not interested in negotiating these mortgages and modifying them. There is no chance of selling the houses keeping a profit.
Ethically borrowers cannot walk away from a loan. Legally also the lenders can chase them to the corners of the earth. In some states however residential mortgages are non-recourse loans – the mortgage holder does not have the right to pursue the borrower. But generally it is a practical problem of locating the borrower compounded by legal technicalities. Because of past abuses by borrowers the mortgage holder is well protected. It takes nearly a year and a half to get the house vacated and obtain a clear title. During these months the house may be badly damaged
Today it is pointless to chase a borrower because the person is in dire financial straits and there is little hope of getting anything out of his pocket. All this has led to mortgage lenders becoming stricter about advancing loans as they are taking into account the increased risk factor.
Right now the problem is what can be done to create a climate of cooperation between the borrowers and the lenders? The government could buy out soured loans for a fraction of the price in return for the assurance of future payments when the income levels increase.
The situation is that a property bought for 300 has now dropped to 200. Little wonder then that the borrower will not be interested in repaying a loan of 300. The chances are slim of the house being sold for even 250. But the picture will dramatically change if the mortgage is brought down to 125 for the time being with the possibility of the amount increasing with an improvement in the price of the house and the income of the borrower.
