Source: Harold Bubile, Herald Tribune
SAN ANTONIO - It has been said so often that it is accepted as fact: In order for the real estate market to "recover," the glut of foreclosed upon properties must be cleared. n "Let the market work." So said a panel of experts speaking at the National Association of Real Estate Editors' annual journalism conference here, in a discussion titled "Foreclosure Crisis: When Will It End?" n Two of them, anyway. A third panelist said that was bunk; there are people, families, living in those houses, and they were set up to fail by Wall Street.
Reflecting the view of many in the industry, panelist Shaun Rogers, vice president of corporate communications for RE/MAX, said, "We need to sell (distressed) houses and move them through the process."
Rogers noted that in Florida, delinquent homeowners are staying in their homes an average of 619 days "rent free" until they are evicted in foreclosure. "We have to start the foreclosure process and run them through the system quicker," he said. "A lot of people have described it as the 'pig in the python.' It has to move through. We have to get through the properties and move on."
"The wrong solution is to let the wrong person stay in that house," said panelist Thomas Thomson, a professor of finance and real estate at the University of Texas-San Antonio. "There is a right person for that house and a wrong person. The right person has a job but can't afford the mortgage payment on the house" at the price he paid for it during the boom.
"The wrong solution is to prolong the pain," Thomson said, for a jobless owner who can't afford any mortgage payment, even one lowered by the federal government's "HAMP" (Home Affordable Modification Program) program.
Not so fast, said panelist Robert Doggett, a staff attorney with Texas Rio Grande Legal Aid. The pace of foreclosures, he said, should not be sped up. Doggett charged that the banking industry has resisted solutions that could prevent the problem from happening again down the road.
"Where's the regulation to prevent this from happening again?" he said, turning up the heat on a discussion that could have been deathly dull. "It's not happening. It's delay, delay, delay. Funny how that works."
After listening to White and Thomson deliver conventional explanations as to the cause and cure of the foreclosure crisis, Doggett let both of them, and the media, have it.
"Everyone is blaming the market now," he said, sounding a bit like a preacher. "What about when the financial industry was about to crater? 'Let the market work?' No, bailouts. We all had a lot to lose then. But now it's, 'Let the market work. We need to make it easier for investors. We need to streamline the process.'
"Well, the market didn't really work, did it? And why should we be so wedded to it now? If we can back up a little, are we going to blame this whole mess on a guy who lied on his loan application? Really? Have you all been duped that much that you are going to continue to write that story, that that is what this is all about? That Wall Street didn't invent mortgage-backed securities?
"This stuff didn't just happen overnight. The guy who lied on his loan app didn't just get born these last four years. This thing was created by Wall Street and aided by the players. Everyone had their hand in it. The Realtor, and no offense to Mr. White, but the profession, what is their answer — sell, sell, sell! Absolutely. That's what they want. That puts more money in their pockets."
Later, when Doggett yielded the microphone to moderator Polyana da Costa of Bankrate.com, she wanted to open the floor to questions. But White jumped in.
"No, no, no, no. Can we respond? We can't let that go unanswered," he said, to laughter from the admonished audience of journalists. Realtors, he said, "are at the top of the list in trying to get lenders to change." And, he added, "The Realtor population has decreased in number greatly. A lot of the people who have lost their jobs and are being foreclosed on are Realtors. We counsel our Realtors to counsel their homeowners" to help them find solutions and alternatives for foreclosure.
Minutes earlier, Doggett said there weren't many solutions, implying that the system is set up against homeowners and in favor of foreclosure.
One of the solutions, the Obama administration's HAMP program, is "a joke," said Doggett, and the other panelists agreed without ridiculing it.
In fact, said Thomson, mortgage modifications are doomed to fail if the homeowner has lost his job and can't make any payment, much less a modified one.
"Why do people default?" asked Thomson. He recited a list of commonly held reasons — divorce, loss of job, sickness. "But the research doesn't support that," he said. "There is only one thing that research supports why people default, and that is negative equity.
"If you think about it, it makes sense. (In a normal market), even if I get sick, if I can't make the payments, I will get the house sold and I will have to move. But there won't be a foreclosure."
Get sick or lose your job now, and try selling an upside-down house — it is a recipe for financial disaster.
"So our big problem today is too much negative equity."
Unanimously, and not surprisingly, the panelists agreed that the dramatic fall of home values is a leading factor in the foreclosure crisis.
White, in promoting the idea of pushing through foreclosures to clean out the glut, cited statistics that the average U.S. homeowner is in his house 400 days from the time of the first missed payment to the date of eviction. In Florida, they stay about seven months longer.
"We have to ... follow through on the foreclosures, get investors into the market, sell homes and work our way through it," said White. "Unfortunately, prices will stay low and maybe drop further until we can get through the process."
Doggett had a different view. "These folks are trapped. They can't do anything. They can't sell it. They don't know what to do," said Doggett. "So, write the story: 'That guy has been in his house 400 days.' Well, there is no place for these folks to go. They want their job back. They want their house value back. They want options. They don't have them. But this is the line that you're given, over and over and over again."
Alternatives? One is bankruptcy, said Doggett. "We were going to have a bankruptcy rule, called a 'cramdown,' so a judge could order modifications. Real modifications. Not the baloney modifications that we have been handed. Shaun (White) talks about the redefault rate. The redefault rate is high, especially in the situations where the modification results in increasing the payments. Imagine that! They can't afford it now, and the modification results in a redefault rate when their payments go up. Shocker."
White sided with Doggett on this point. "Reducing the loan balance and extending the term can be looked at, but those things require money the government is not willing to spend."
Doggett said a bankruptcy judge can modify a loan on a second home or a boat loan. "Where is the story about that? That is a real modification, where it doesn't cost the taxpayers a dime, because it is in bankruptcy and the judge has the authority to look at everything and decide what is right. What did we get? We got HAMP. What a huge failure. I agree with Shaun. What a joke, because homeowners don't have any rights whatsoever. 'Hey we got this modification over here for you,' and boom, they foreclose on you, right at the same time.
"Foreclosures, ready to go. They got the lawyers, they got the teams, they got the Realtors — they have everybody on their side."
With a hint of resignation in his voice, Doggett closed by saying, "People mean very well. They say, call your servicer, call your hotline, which was created by the industry. I am not sure where it will end, or if it will ever end. It always will be out there. My interest is to try to keep foreclosures from happening, and I don't see a lot of people on my side."