Cover Story

Commanding the waves to recede

"Commanding the waves to recede" Continued...

Issue: "Ghost streets," Feb. 27, 2010

So as we head toward spring, the United States is at an inflection point regarding housing policy, as it has been regarding health care. So far, lenders are not being pushed to issue new mortgages for amounts hugely more than the value of a house-but that would change if Sowell's stage four came marching in. MSNBC opined that "saving a home from foreclosure can be as simple as rewriting a costly, high-rate subprime loan to prevailing mortgage market rates. . . . If that doesn't work, lenders can cut the amount of principal owed." Famous last words: "as simple as."

There's nothing simple here. The Inspector General for the Troubled Asset Relief Program, releasing on Feb. 2 his quarterly report to Congress, expressed concern about a "heads, I win; tails, the Government will bail me out" mentality affecting both homeowners and companies. Without bailouts, will we see more ghost towns?

But what about the experience of WORLD readers like Cheryl, who wrote on worldmag.com, "I myself bought very, very sensibly and I'm still struggling a bit-I don't have surplus funds to bail out others who were less careful with my taxes, lest I lose my own house."

Economics analyst Megan McCardle, concerned with the moral hazard that bailouts create, has a sensible suggestion: "We might start by trying to make it easier to get out of houses, as well as stay in them. Instead of encouraging people to throw their savings into hopeless modifications, maybe the government should be trying to streamline the process of arranging for a short sale so that people can walk away with a little savings in the bank (and on their credit report) to help them get a fresh start." In a real estate short sale, the proceeds fall short of the balance owned on the mortgage loan, but the lender agrees to take a moderate loss rather than go through the slower and more costly foreclosure process. One owner gets out of the house and someone else moves in at a price that person can afford.

The Obama administration, despite campaign rhetoric about "change," is trying to slow down the process of change that is central to free societies and free markets. Many realms now relish stasis. Tenure slows down the process of academic change. Unions slow down change. Compassionate liberalism is about holding on to what we have, and trying, like King Canute, to command the waves to advance no further. Compassionate conservatism, properly understood, is about propelling change. Rather than hanging on to a spot on the sidewalk, build a new life. Rather than hanging on to a single-family home that can't be paid for, rent an apartment. That can be hard, but for generations social mobility has defined an American spirit that creates overreaching (read The Great Gatsby) but also overachieving.

Early this month on Bonita Beach, just south of Fort Myers, two surfers in wetsuits kept falling off their boards and getting back on, fighting the waves but loving them. Nearly a century ago F. Scott Fitzgerald approached the ending of his terrific novel by writing that "Gatsby believed in the green light, the orgastic future that year by year recedes before us." That's the mentality of the housing bubble. But Fitzgerald concluded, "tomorrow we will run faster, stretch out our arms farther. . . . And then one fine morning-So we beat on, boats against the current, borne back ceaselessly into the past." Or into the future.

'The whole process is confusing'

Community group claims a disorganized Bank of America is dragging its feet on loan modifications

By Alisa Harris

After Ken Kelly saw the value of his California home decline from $600,000 to $350,000, he asked Bank of America (BoA) to renegotiate his loan through the federal Home Affordable Modification Program (HAMP). After bouncing from representative to representative, he sent his paperwork in November, only to be told there was a technical glitch and that he should delay his payments. He says that when he finally received new paperwork, his loan payment had gone up $400 a month to penalize him for the missed payments the bank told him not to pay, and would later increase even more. The new agreement was not a HAMP modification.

"The whole process is confusing," Kelly said. "A lot of the times you don't understand what they're giving you." People Improving Communities through Organizing (PICO), a national network of faith-based community organizations with allies like Sojourners and the Presbyterian Church (U.S.A.), is organizing a national campaign against BoA, accusing it of delaying loan modifications and violating its agreement with the Treasury Department by offering its own modifications instead of using HAMP.

By November 2009, BoA had issued only 98 permanent HAMP modifications although the Treasury Department estimates that 1 million of the 14 million BoA-connected homeowners qualify. PICO affiliates say this number of permanent modifications is dismally low and that BoA is so disorganized that some homeowners have received a loan modification offer on the same day they receive a foreclosure notice. BoA spokesperson Jumana Bauwens said BoA has over 9,000 permanent modifications pending; once it clears the backlog, it promises homeowners will wait only three months for a permanent modification instead of five or six.

While BoA has a low number of completed HAMP loan modifications, it has completed almost 260,000 non-HAMP loan modifications. PICO accuses BoA of breaking its Servicer agreement with the Treasury Department and offering its own loan modifications to homeowners who qualify for HAMP. PICO says some of these modifications are devastating, interest-only modifications where the payment may suddenly double in five years.

Bauwens says BoA only offers its own loan modification if the homeowner doesn't qualify for the HAMP. The offer depends on individual circumstances-a person's debt or employment-and may reduce the rate or lengthen the terms of the loan. Although the foreclosure process may continue while someone is seeking a permanent loan modification, BoA won't sell the house. If someone drops out of HAMP or doesn't qualify, she said, "We're not going to take these people and throw them into foreclosure."

Marvin Olasky
Marvin Olasky

Marvin is editor in chief of WORLD News Group and the author of more than 20 books, including The Tragedy of American Compassion. Follow Marvin on Twitter @MarvinOlasky.

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