- - Thursday, November 17, 2011

A very good friend of mine who’s a political consultant emailed me an interesting question. It went like this: “If you were Congress, what specific things would you do to fix the foreclosure crisis, and what specific things would you do to fix the mortgage crisis?”

I replied that I have opinions on what might help solve the problems, coming from the perspective of one who speaks with homeowners every day, and that many might disagree with me. I also made a cynical comment that unfortunately seems to be shared by many Americans: I don’t have a lot of faith in the ability of Congress to get things done efficiently.

Having said that, I tried to answer his question. Regarding the foreclosure crisis:

First, lenders need to address the borrowers who are having trouble making payments before they actually are in arrears. I have had countless conversations with homeowners who say they have contacted their lender in hopes of avoiding defaulting on their loan. Invariably, these folks tell me the lenders say they cannot help until the homeowners are in arrears and their credit is ruined. This cart-before-the-horse policy is absurd.

Second, more flexibility needs to be implemented in the system to allow folks in danger of default to continue to make their payments. This may include a streamlined modification that would reduce the interest rate and extend the amortization term, allowing for more affordable payments and decreasing the default rate.

I certainly don’t endorse the notion of rewarding folks who threaten default. Many, if not most, homeowners in danger of default are holding high-interest subprime loans. Some combination of lowering borrowing costs and lengthening the amortization period might be in order. This may encourage homeowners to keep their payments timely, remain in their homes, retain their good credit rating and ride out what may be several more years of an anemic housing market.

Reducing the number of foreclosures will expedite a housing recovery. Dumping thousands of foreclosed homes on the market only exacerbates the situation by increasing supply when there’s already low demand, further depressing home prices.

Here’s my take on the mortgage crisis and suggestions to solve the problem:

First, everyone must recognize that the overreaction to the “easy” mortgage money of the 2000 decade is just as foolish as the policies that created the overreaction. While the Fed has made huge and successful efforts to lower interest rates, many people are still unable to get a mortgage to buy a home or refinance - both of which would help the economy.

The Home Affordable Refinance Program is being revamped so more homeowners will be eligible. From what I understand, however, many of the details that impede many homeowners from taking advantage of HARP are not being addressed. So far, I’m not encouraged. More on this later.

The problems are broad and deep. The credit markets eventually will reach a balanced center, and the economy eventually will be on the road to recovery. When this will happen, I just don’t know.

Meanwhile, the good news is that interest rates remain low, qualified homeowners are saving money by refinancing and homebuyers are realizing the timing is probably pretty good to buy a home right now.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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