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Friday, September 30, 2016

10 Questions — And Answers — To Help You Understand The Foreclosure Crisis

by Blair Hickman, ProPublica

 

Last week, ProPublica reporter Paul Kiel took time out from promoting his e-book to answer reader questions on Reddit about the foreclosure crisis, buying a home and how he got started as an investigative journalist. We rounded up some of the best, trying to represent a full view of the chat (and the crisis.)

What caused the foreclosure crisis and what can be done to fix this problem? — erkapathy

Big questions! Causes: well, two big causes. The crisis started with subprime loans, or loans made to risky borrowers, like the one I write about in my new e-book. Starting in 2007, housing prices turn downward. That meant people with loans they couldn’t afford couldn’t sell to get out of it any more.

And there were lots of really crappy loans out there, loans that really were never affordable for people to start with. Those loans got made because …unscrupulous mortgage brokers were pushing them, and yes, because borrowers were willing to take them on. Fraud was really common 2014 brokers just making up income numbers. Some of the loans didn’t even require proof of income or assets.

So the first big cause was bad, mostly subprime lending.

The second big cause was that the economy tanked, and there was a spike in unemployment. Mortgage servicers handling these loans made matters worse. They had a financial incentive to just push people toward foreclosure, to be understaffed, etc.

For years, the government mainly took a carrot approach. They tried to provide subsidies to convince banks to competently handle modifications and foreclosures. It didn’t work. So now there’s more of a stick approach. If there are real consequences, it might work, but it’s sure taken a long time for the approach to change.

I should mention that I discuss one big policy alternative in the piece: allowing bankruptcy judges to modify loans. Obama had supported that when campaigning, but essentially ditched the issue once he was in office.

I’ve been surprised at the public’s relative lack of anger…everything just seems to roll along like it always has. Do you see some sort of breaking point? — AndyRooney

Even at the height of the crisis, this was a problem affecting a relatively small minority of the population. Six or seven million delinquencies sounds like a lot, and it’s historically high, but you have to keep in mind that’s out of about 50-55 million total mortgages. So I think there’s always been some wariness among policymakers about seeming to favor that minority. But the robo-signing scandal did at least prompt some change as far as that goes.

I keep hearing that “banks don’t want to be in the housing business.” But if not, why didn’t they try harder to work with people on their mortgages? I know two different homeowners who couldn’t get their lenders to even return their calls when they began to have trouble paying their mortgages. Is this a simple transfer of assets from the poorer to the richer? Why did the crisis play out this way, if the banks aren’t truly better off because of it? — krrush5

Keep in mind that roughly 90 percent of the time, the bank handling your mortgage payments doesn’t actually own your loan. They’re just acting as the mortgage servicer 2014 their job is to process your payments and then deal with you if you fall behind. A lot of what’s happened over the past few years flows from that simple fact.

Basically, during the housing boom, the banks saw servicing as an easy way to make some good money. The model, essentially, was: let’s take on as many loans as we can while dealing with those customers as little as possible. It worked great as long as the boom continued. But when housing prices started dropping and millions of people started calling their servicer, it proved a recipe for disaster.

The [foreclosure] problem seems so large, so intractable 2014 do you see an end in sight? And How long do you estimate it will take for the market to recover? For all these underwater homes to be dealt with? — AndyRooney

I think it’s too soon to say that the end is in sight, but the homeowner facing foreclosure now at least has a bit better of a shot than someone facing foreclosure two or three years ago.

Oddly enough, some of that is due to the robo-signing scandal. That finally prompted regulators and law enforcement to take some sort of meaningful action. Regulators swear up and down that this time if the banks break the rules, there will be consequences. We’ll see about that, but at least it’s movement in the right direction.

And it depends on what you think “recovering” means. A number of analysts think house prices will bottom this year. But it will likely take until 2014 or so before the number of homes facing foreclosure descends to something like normal levels.

  • howa4x

    I had a mortgage with the dreaded Bank of America. they offered me a deal when my consulting business was stalled to pay 1/2 for 6 months. At the end of that time they sent me a bill for the entire balance and an intent to foreclose. Then they offered me a modification and while it was in process they foreclosed 2x. I finally sold the house and will rent from now on. I also paid off all my credit cards and cut them up. I will not give these bastards one more cent in interest. I don’t care if every one of them goes under.

  • quasm

    Mr. Hickman;

    If the lenders were unscrupulous, weren’t the borrowers equally unscrupulous?

    Dik Thurston
    Colorado Springs

  • With all due respects, I think that explanation of what happened to this country is totally anemic at the very least and completely dishonest and cynical at best. The problem in this country, in general, is that evil, treasonous relationship our government has with enormous corporations and huge banking houses. UnGodly sums of money are given to elected people by this new robber baron cast and in exchange for which elite, wealthy financial interests are in our legislatures, getting laws passed in their favor and against the interests of average, every day American families. The net result of this is that these corporations and banks have been allowed free rein in the market place to engage in extremely irresponsible, cynical reckless behavior which has brought this country down. And because our leaders are really bought and paid for by them, they not only get away with their enormous crimes against the people of this country, but they even got paid trillions of bail out dollars for it while American families who are getting financially killed because of these cynical, greedy dirt bags, get the middle finger from those they elect. Regular people’s lives are being increasingly and severely regulated with a suffocating amount of legalism while at the same time massive financial entities, the elites, as it were, are being increasingly deregulated so they can experience unimaginable economic boons. The people, on the other hand, are being financially and legally tied in knots to the extent of barely being able to breathe in this lousy country anymore.

    Why won’t someone tell the American people how evil and rotten their government really is? It’s because if Americans had the slightest idea of how the monetary system in this greed-poisoned country really works, there surely would be a revolution, a sorely needed revolution, within 24 hours. How cynical, dishonest and filthy that you would actually try to blame borrows, the American people, for what will most assuredly go down in history of this country as the greatest swindle and fraud of Americans by their government. A silent coup d’etat has occurred int his country right before our eyes…and the American people have barely made a peep about it. Wow!

    In my view, that generation in power, the babyboomer generation, has completely destroyed a country that was handed to them by their parents generation on a golden platter, with milk and honey aplenty everywhere. And they squandered and horded it all for themselves. What nasty, greedy, cynical vermin they are for stealing our heritage from us. Criminals!!!

  • SoTiredofLies

    In the small sweet town of Marietta, OH, their bank would not even give them JUST ONE MORE DAY to make their monthly payment. They would have the money, but their bank foreclosed. In an area of closed factories and a high poverty ratio, the borrowers were not at fault, but the bank sure was.

  • LOOK IV,E BEEN FIGHTING MORTGAGE SENCE 2005 AND I,M STILL GIVING THEM A GOOD FIGHT I,M NOT ABOUT TO GIVE UP ON THIS I WILL LET THEM KNOW THEY CAN,T PUSH ME AROUND SO DON,T LET THEM KEEP FIGHTING BACK NOMATTER WHAT HAPPEN DON,T GIVE I,M FIGHTING FOR MY RIGHT AND THE RIGHT OF MY FAMILY, BUT WHAT ALOT OF POEPLE DON,T KNOW WHEN YOU FIGHT BACK THE MORGAGE SERVICERS HAS TO PAY FOR EVERYTHING . SO DON,T GIVE UP ON THE FIGHT

  • LOOK POEPLE GET RIDD OF ALL YOUR CREDIT CARD AND JUST KEEP A BANK CARD BUT KEEP AN EYE ON THEM TO CAUSE THEY,LL STEAL YOUR MONEY TO SO WACTH OUT FOR ALL THAT BULL S;