Foreclosures Rise: Philadelphia Takes Matters into its Own Hands
According to the most recent data, a whopping 14% of all mortgages are now in some stage of foreclosure, up from only 10% at the start of the year. As if you needed me to tell you, that’s an all-time record. Given that the unemployment rate continues to climb and that initial foreclosure filings have risen 27% in the year-to-date, most analysts predict the foreclosure crisis will worsen in 2010.
Have no fear: Obama is here! At least that’s what the federal government would have you believe. It credits its “Making Home Affordable program” with helping hundreds of thousands of people stay in their homes, where otherwise they would have already have been evicted. Unfortunately, this claim is contradicted by a deeper analysis of the data. While 650,000 loans have indeed been modified under the program, that represents only 20% of the pool of eligible loans. In addition, only 1,711 (less than 1%) of these temporary modifications were ultimately given permanent modifications. It can be assumed that a large portion of the remaining loans entered foreclosure anyway, after a temporary reprieve.
Weary of criticisms that the Making Home Affordable program is plagued with fraud and ultimately nothing more than a stopgap measure, the Obama administration yesterday announced that it was stepping up pressure on lenders, especially those whose participation can best be described as lackluster. (Haven’t we heard this before?). The last announcement involved monthly progress reports; the current iteration will involve twice-daily updates with the threat of “public shame” for those that still refuse to comply.
Both lenders and the government claim that the fault lies with homeowners for not providing the necessary paperwork to complete the modifications. This accusation seems to be almost completely without merit, however, as newspapers are rife with reports of year-long delays and lost paperwork, by lenders who seem to be doing everything in their power to ensure that the modification program proves to be an abject failure. Citigroup claims that the government’s standards are not as stringent as banks. It has moved to reduce principal (as well as interest) on eligible loans as part of a strategy it argues will be more successful over the long-term in averting foreclosure. Given the .3% conversion rate (from temporary to permanent modification) observed in the government’s program, they might have a point.
State and local governments are fed up, and have taken matters into their own hands. There are already isolated instances of rogue judges ruling in favor of borrowers in foreclosure hearings, but these remain the exception rather than the rule. The City of Philadelphia recently passed an ordinance that requires lenders to meet with borrowers in a “conciliation conference” before a borrower can be evicted from his home. If the judge ultimately determines that the lender didn’t work diligently to negotiate a compromise, then foreclosure will be forestalled. The city even has the support of the Sheriff on this initiative, which means going forward, no foreclosures will take unless the borrower has absolutely no means to continue making mortgage payments.
Unfortunately, this “unless” seems to apply to a substantial portion of defaults. “Foreclosures on prime mortgages accounted for 33 percent of all foreclosures last quarter, up from 21 percent at the start of the year.” As a result, it looks like the Philadelphia program is doomed to failure. Summarized a lawyer for homeowners, “It’s a largely ineffective stopgap prolonging what appears to be the inevitable, which is the loss of homes. It’s arbitrary and unpredictable, but it’s better than what anybody else is doing.” I guess at this point, that’s the best we can hope for.