If you think solving our foreclosure crisis in this country is by conducting State or Federally mandated moratoriums…well, you are completely misguided.
Try looking at the moratorium issue as strictly a monetary policy vs. a politically correct policy.
We all know foreclosure cost money and, it isn’t cheap. We also know the longer a home stays in foreclosure or the longer a bank has to hold onto bad debt, the more expense the bank takes on in Attorney fees, public notice cost, city and state filing fees, property maintenance fees and so on. The more cost the bank takes on, the greater the bank’s loss, and that leads to the bank’s requiring higher credit scores to get a loan, higher interest rates, higher down payments and so on. My point is, all that loss is passed onto the consumer through other ancillary fees which makes the general cost of banking more expensive. In other words, the rest of us will end up paying for these moratoriums in the long run so, why make that cost any more expensive than it already is?
Now in some cases, like the federal government using moratoriums, some people argue it is necessary to do everything we can to delay or trickle in the foreclosures because there are just so many that if they all came in at once, it would crash the economy in a way we haven’t seen since the Great Depression. I am no “REO Oracle” as one member once sarcastically but humorously joked (at least I think he was joking…I hope he was joking….maybe he wasn’t joking…either way, it was funny) but, I do believe that trickling in the inevitable does nothing more than create a long drawn out crash over many years. What would you prefer…a 10 year recession / bear market or a 3 year depression? I know what I would prefer and, I am not sharing because the hate mail would come in droves….lol, it really would.
So, why do I keep saying, “the inevitable”. Well, the truth of the matter is that from my own experience with Foreclosure Avoidance Counseling, Loan Modifications, Short Sales and REO’s, I can tell you that these banks are still doing HIGH RISK LOANS. That’s right, you heard me correctly….HIGH RISK loans are still being used widely by many Loss Mitigation Departments that are doing loan modifications and other workouts to help preserve homeownership. The reason they are still using these HIGH RISK loans is because it’s the only way they can bow to the pressure of government to do all they can to preserve homeownership. Once again, the government is stepping in, forcing banks to make risky loans or in this case, loan modifications, that end up foreclosing in 3 months anyways. A recent Fitch Ratings survey acknowledge this fact that I had been seeing in my own business. I don’t have the survey in front of me at the moment and am working from my memory but, I believe that Fitch statistic was somewhere between 60-70 % of those who complete loan mod’s end back in foreclosure in 3 -6 months. Just so you know, in the past 12 months, I have had over 40 individual Foreclosure Avoidance Counseling sessions and out of them, almost half went back into foreclosure in less than 3 months and almost all of them ended up in default in less than 7 months.
Towards the start of this blog, I told you I wasn’t going to share my opinion on moratoriums but, if you haven’t figured it out by now…….well, read this blog a couple and hopefully you will get it. Ok, I will spell it out, moratoriums suck!
All a foreclosure moratorium is, is a political tool to win votes, at least that is my opinion.