Temporary Suspension Of Foreclosures: Time To Get Real

Let’s take a look at Citibank (C), J.P. Morgan [JPM]] and the Mortgage GSE’s plans to temporarily suspend foreclosure proceedings:

(From the Associated Press):

WASHINGTON - JPMorgan Chase & Co. and Citigroup Inc. are expanding their efforts to halt home foreclosures while the Obama administration develops its plans to help the U.S. housing market.

JPMorgan Chief Executive Jamie Dimon said the New York company plans to halt new foreclosures for owner-occupied home loans through March 6. Dimon made the pledge in a letter to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who released it on Friday.

“This moratorium replicates the 90-day foreclosure freeze we announced on Oct. 31,” Dimon wrote. “We believe three weeks is adequate time for the Treasury to announce - and for us to implement - a new plan.”

Citigroup’s foreclosure moratorium applies to all “Citi owned first mortgage loans that are the principal residence of the customer as well as all loans Citi services where we have reached an understanding with the investor” until President Barack Obama’s administration has finalized the details of the loan modification program or March 12, whichever is earlier, according to a company release. New York-based Citi’s action expands on a similar effort that it started in November.

Frank on Wednesday called on the mortgage industry to enact broad foreclosure moratoriums, and executives from the nation’s largest banks committed then to such action…

…Government-controlled mortgage finance companies Fannie Mae and Freddie Mac suspended foreclosure sales during the winter holidays and have halted evictions from foreclosed properties until next month. And earlier this week, John Reich, director of the Office of Thrift Supervision, urged the more than 800 thrift institutions nationwide to do the same.

Meanwhile, the administration is considering spending taxpayer dollars to cut monthly payments for homeowners on the verge of foreclosure.

There are a couple of problems here:

Suspending foreclosure is of no help to someone who bought a house they couldn’t afford, giving them more time isn’t making the payments going away, nor is it helping the person increase their income. As a result all you’re doing is to do delay the inevitable and possibly creating a situation where the impact of the eventual foreclosure will be even worse. The smart thing to do is to help these people get into a sustainable and affordable housing situation, not help them to perpetuate a bad one.

It’s glaringly obvious that the government (and others) are refusing to face the facts around the mortgage crisis: people bought homes they can’t afford and no amount of “loan modification” can change that. Hence the reason that 36% of all modified mortgages are 30 days or more past due after 90 days, meaning that many of the people whose mortgages were modified struggled to make even one payment.

Subsidizing Mortgages with Taxpayer Dollars should be a non-starter, it shouldn’t even be on the table. What’s the government going to do, subsidize someone’s mortgage until they build up their income and/or pay the mortgage off? Are they going to make lump sum payment to reduce principle so they person can refinance with a lower payment?

Considering that we’re in a crisis caused by irresponsible behavior on the part of lenders and borrowers, does it really make sense to both subsidize and encourage future irresponsible behavior that could very well be the cause of our next economic crisis? If we want to have a stable economy in the future we have to encourage people to behave in a manner that’s both responsible and sustainable.

Furthermore how can our Congress (and the average citizen for that matter) have the moral authority to deride Wall St. for executive pay, perks, private jets, etc, when the same amount of outrage doesn’t exist for bailing out irresponsible citizens?

I didn’t realize that this was the United States of Hypocrisy, I’m starting to think that some people only believe in personal responsibility, self-reliance, etc, when it’s convenient.

Prolonging the problem: the decline in housing prices isn’t going to stop until the foreclosure problem has run its course, and prices have declined to pre-housing boom levels. Artificial methods of propping up the housing market are only going to prolong the very problem that these fatuous tactics are trying to prevent.

Instead of trying to prevent the foreclosure problem the government should focus its efforts on getting people into affordable housing situations, not only will this help the housing market reach bottom faster but the people who are struggling to keep their homes will find themselves better off in the end.

You can read more here(AP) and here (WSJ); Dimon’s letter to the government is available here.

Source:

The Associated Press: “JP Morgan, Citigroup halting foreclosures” — Alan Zibel, February 13, 2009.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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Comment by mario cavolo

2009-02-14 03:26:42

Wow, that’s a nice provocative post and I will respectfully submit the provocative responses.

“The smart thing to do is to help these people get into a sustainable and affordable housing situation, not help them to perpetuate a bad one.”

You’re assuming here that other things are not being done. Banks are not in a position to help struggling people find sustainable and affordable housing NOW, when they are trying to avoid living on the street with their children. These problems have to be addressed on multiple levels, you’re singling this out.

“Hence the reason that 36% of all modified mortgages are 30 days or more past due after 90 days, meaning that many of the people whose mortgages were modified struggled to make even one payment.”

People are struggling to make the payment because they lost their job. They have no income and very little if any money in the bank. You’re being a merciless righteous prick. If I was struggling and my bank said they would give me break on payments, especially because of a situation they precipitated, I would appreciate it. For example, if they suspended the interest portion of the payment or reduced the payment, and yes if they put a hold on foreclosure proceedings. That is LEAST they could do to support the citizen of America they have genuinely and obviously screwed in the first place, yes?

“Considering that we’re in a crisis caused by irresponsible behavior on the part of lenders and borrowers, does it really make sense to both subsidize and encourage future irresponsible behavior that could very well be the cause of our next economic crisis?”

My God, you’re looking to swing in the ring with Mike Tyson for fun on this one. You need a lesson in cultural anthropology. I know you think you are free thinking indepent Willed human being, but you are not. You are a programmed product of the culture you live in with a set of beliefs and values and behaviors that exist in people ONLY in THAT culture in which you live. You live in a society where the govt/media encourages you to borrow, borrow, borrow to the hilt, to live a debt-based lifestyle. In contrast, I live here in China where virtually no one has a penny of credit card debt or mortgages. What, you say? No MORTGAGES? Yes you read correctly. Even NO MORTGAGES. The vast majority of homes and cars and everything else is bought and paid for cash, which is so vastly different to the American cultural values regarding managing money, it can’t be comprehended. People are NOT to blame for the environment in which they live and get programmed to. You live in a society that encourages you to take on more and more debt, get a divorce, stay married, get a loan, or pay cash when you spend money, that’s what you will do. You’re being way too idealistic. I wish I could offer the perfect Chrisitan response, for example, to turn the other cheek, but sometimes it IS better to respond like Donald Trump, smack the shit out of the jerk and get revenge so other people know not to mess with you. The bank’s speculating games are the final RUIN of lots of good people’s lives whose worst crime was to do their best and have the rug pulled out from under them by the rich greedy bastards above. Now millions of them have lost their jobs and are in survival mode.

Furthermore how can our Congress (and the average citizen for that matter) have the moral authority to deride Wall St. for executive pay, perks, private jets, etc, when the same amount of outrage doesn’t exist for bailing out irresponsible citizens?

Bailing out irresponsible citizens? Now with the question we do hit the heart of the matter, that is defining who are the real middle class folks who need and deserve and appreciate a delay on their foreclosure vs. the game players who don’t. There will always be the liars and gameplayers. They can easily be weeded out by a clear qualifications process by the banks when they apply for whatever kind of relief the banks are offering. Its the same as the story of the divorced couples, you know? They both undderreport their assets and income, put it offshore, put it in their new spouses’s name, etc. But somehow, the people who really need and deserve help, should not lose their homes because they are victims of the system’s greedy execs.

Cheers, Mario

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Comment by David

2009-02-15 06:30:23

Okay mario,
It’s obvious that Markham Lee hit several nerves in your central nervous (financial belief system). When I read his article I thought he was making a lot of salient and justifiable points re banks and irresponsibility in general. However, you have countered well. Your basic argument seems to be that if the system engrains in you the belief that it is okay to live your life on borrowed money (something unthinkable only a generation ago), then it’s not your fault if you try and take advantage of it.

You are right; it’s human nature to try and get as much as you can, especially if it is handed to you on a silver platter, but Mr. Lee is right too. There are no free lunches out there! People who borrowed beyond there means, whether encouraged to or not, have to accept some responsibility for their actions. The system was far from perfect and it has failed through collective greed and that is everyone’s responsibility, not just the institutions who promoted it in the first place.

Clearly things have to change and change is usually uncomfortable in the short term. In the future financial institutions have to be better regulated and more collectively responsible. they need to develop a social sense of what they are; their role and place in society (maybe that’s expecting a bit much, but we can hope).

I agree that government needs to do what it can to help those who have lost their jobs and or homes, but it should not seek to prop up a system that has clearly failed. Markham Lee is right in the sense that prolonging the death of this system will be more painful and expensive. It needs to be buried and its casualties helped as much as possible; in America, more affordable and accessable health care would be a good starting point, but that’s another topic, albeit related.

Best Regards
David

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