How To Cure The Foreclosure Crisis--Image via Wikipedia
The foreclosure crisis is refusing to budge. Large volumes of foreclosures plague Texas and just about every other state in the union. But what can we do? Mortgage modifications have failed. Mortgage servicer incentives have failed. And of course, bank bailouts have failed. But maybe government-owned mortgage giants Fannie Mae and Freddie Mac have got the right idea. Right now they are considering whether to force loan servicers in South Florida to go to mediation with some troubled homeowners before a foreclosure begins.
The mediation would work with homeowners facing foreclosure and their mortgage servicers to find a solution to avoid foreclosure. Under the proposed rules, the borrower and mortgage servicer would enter into mediation after the homeowner has become 90 days late on their mortgage payments. It sounds like a start, but is mediation the "answer" to our foreclosure woes? Probably not the answer but a step in the right direction.
There are a few variables that make it possible for foreclosures to persist despite the various programs and bailouts aimed at curtailing. Our current foreclosure prevention programs attempt to address some of those variables. But what's missing is the incentive for mortgage servicers to avoid foreclosure. As we have discussed on various occasions, the mortgage servicing industry financial benefits from foreclosures.
They get paid when they handle foreclosure cases. On the other hand, they don't make more money for keeping people out of foreclosure. What really needs to happen is that mortgage servicers should be punished for failing to exert enough effort to help a homeowner avoid foreclosure. The Fannie Mae and Freddie Mac proposal is a start; but what we really need are fines and sanctions for the mortgage servicers who have blatantly failed to avoid a foreclosure when it was possible.