Foreclosure solutions: Salmon on Glaeser on Ellickson

Posted by: Peter Coy on February 3, 2009

Recommended reading for today: Felix Salmon’s blog post on Ed Glaeser’s review in The New Republic of Robert Ellickson’s book, The Household: Informal Order around the Hearth. Lots of good thinking about what causes foreclosures and how to deal with them humanely and effectively.

Reader Comments

t schipani

February 3, 2009 12:30 PM

The major problem with the economy is housing. A major stimulus would be an across the board government regulated reduction of all current mortgages for every homeowner. It would be important to have this streamlined with no exceptions. Banks are taking government handouts and hoarding the money. In order to stimulate spending, Americans need to be better off then they were yesterday. A mortgage rate reduction would put money in American's pockets each month and be a long term investment not a temporary band aid . Although some Americans can refinance, the restrictions are so stringent right now many do not qualify. Even if you do, it is extremely costly to do so. This would allow more of homeowner's mortgage payment to go to reducing their principle, therefore, allowing equity to be built up faster helping to offset the drastic home value reductions.

In addition to assisting average homeowners. the foreclosure problem should be approached by the government in the following way:
All banks that have or will take government handouts should be required to rework loans in the following way: A one time forgiveness of all past due interest and elimination of any added fees and penalties. Currently banks are just adding past due amounts with interest, late fees and penalties to the principle, adding huge unexplained fees (corporate expense?), and not reducing interest rates. This is creating even larger monthly payments for distressed homeowners whose home values have plummeted. The desperate homeowners aggree to anything because they are terrified they will lose their homes. The banks provide no worksheet explaining the additional costs eventhough the homeowner is in no postition to question the additional fees. The "reworked" loans end up delinquent several months later because the homeowners are worse off then they were before the modification. The argument not to help "irresponsible" homeowners can no longer hold up. Banks are being bailed out left and right and not giving back. Rework the loans based on principle balance plus any real estate taxes and homeowners insurance due. Reduce the interest rate to the national rate. Eliminate the "counseling services" because the don't work. Lenders are not successfully rewriting mortgage loans to prevent foreclosure. This crisis is dragging down the American economy and much of it is because of the banks refusal to step up and do their part. Investors will lose the past due interest amount which is better than losing their entire investment if the homeowner forecloses. They can write that off on their taxes. Americans have seen their investment portfolios plummet in value. That is the current economy. The only way things can turn around is if the mortgage crisis is address in a national streamlined way immediately. Banks and investors will be more fiscally sound in the long run because their investments in homeowners will be more stable.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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