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The administration's foreclosure policy -- for now


Earlier today, HUD Secretary Shaun Donovan joined Treasury's Michael Barr to brief reporters on the administration's response to the foreclosure mess. And the answer, basically, was that "it's under review." A variety of agencies overseeing a variety of sectors related to the housing market are participating in a "comprehensive" review of the matter that should finish up in nine weeks. That gives the administration time to let this mess sort itself out and, if it doesn't, time to figure out how to insert themselves more directly.

But they'd clearly prefer not to. "The moratorium, which is still in place for Bank of America in a majority of states, is their decision, their business decision, and it is a decision every servicer is making independently. What we need to be clear about is that we work with state attorney generals to make sure those processes are done correctly." In other words, the administration's policy, as of now, is that the continuation of the foreclosures is up to the banks. The administration's role is to make sure those foreclosures are going by the book. It is not, as some hoped, to halt all foreclosures, or use the uncertainty to reform the underlying process.

"We require our servicers, early on in the process, to contact borrowers who are delinquent, offer them a specific set of options -- like a modification or a payment plan -- that would allow them to stay in their home and minimize losses to the taxpayer," said Donovan. And he came back to that again and again. Some servicers, he argued, simply aren't holding up their end of the bargain, and that's when the government has to get involved.

But whether the servicers are doing their due diligence in offering homeowners facing foreclosure help is a bit different than whether the contracts on which those foreclosures are based have legal authority, or whether investors will be able to force banks to buy back so many of them that the system's solvency will once again come under threat. And on those issues, Donovan largely reserved judgment. "It's under review," he said.

Photo credit: Susan Walsh/AP

By Ezra Klein  | October 20, 2010; 5:38 PM ET
Categories:  Housing Crisis  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: The case for a foreclosure moratorium
Next: Reconciliation


I continue to support the federal response to the mortgage mess: federal inaction is good and the longer federal hands can avoid the mess the better off we all are. In practice, there is little or nothing that any federal agency can credibly do to evict a debtor/squatter from a foreclosed property: heightened activity -- statutes, court battles, and enforcement efforts -- will likely underscore the impotence of the federal government, provide incentive for further bad behavior by borrowers, debtors, lenders, and traders, and increase the burden on honest taxpayers.

Having said that, two phrases in the comments above caught my eye.

First, the phrase "We [HUD] require our servicers" is somewhat significant in that a portion of the 11 million or so mortgages now in default are devoid of federal participation. Back when I had a mortgage, it was a private contract: the federal government -- HUD, Fannie, Freddie, etc. -- wasn't involved. If there was no violation of a federal statute, there may be absolutely nothing the federal government can do about such private contracts.

Second, a review which "should finish up in nine weeks" will be just in time for the 112th Congress. This is certainly politically convenient for the ruling regime, which will (true to form) refuse to accept responsibility for the matter.

Posted by: rmgregory | October 20, 2010 6:39 PM | Report abuse

Plain and Simple. Go back to the loan origination. Show me the loan. Show me the underwriting qualifying approval.

Posted by: steveherb | October 20, 2010 7:10 PM | Report abuse

If you are planning a mortgage refinance then you should search online for "123 Mortgage Refinance" before you decide they found 3.25% refinance with bad credit history and also did instant analysis of my mortgage.

Posted by: harryblack21 | October 21, 2010 4:18 AM | Report abuse

If you want some perspective on government responses to foreclosure crises, go no further than FDR. He had a similar problem on his hands, and he was able to respond in a way that benefited everyday Americans (without throwing any sort of wrench into the economy). The answer is loan modification. Check out this historian's take on the situation, I think it gives a lot of insight to our situation:

Posted by: BryceCovert | October 21, 2010 4:20 PM | Report abuse

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