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No such thing as free houses

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POSTED October 22, 2010 3:02 a.m.
“Sorry, no free houses.” - Glenn Schorr, an analyst with Norton Securities International in a research report sent to clients concerning the foreclosure moratorium
 
The legal storm brewing over technicalities in mortgage foreclosures that don’t change the essential bottom line could have devastating impacts on the nation’s housing recovery.

Firms that analyze and monitor investments such as Moody’s have been predicting a wide spread housing recovery to get underway by the third quarter of 2011. Now they are fearful lawsuits and court orders over robo-signing issues that basically are paper-work related and doesn’t change the ability of the homeowners to pay for mortgages will prolong the start of a widespread recovery by as much as 28 months.

The impact on California housing will be minimal given the state’s foreclosure process is done outside of the court system.

What is more disturbing is the attitude of a number of banks and more than a few distressed homeowners.

A Manteca Realtor points to a case where an individual had her income slashed by 30 percent and was hit with a family illness. She continued making payments while trying to get through a loan modification program. For more than a year she endured 1.5- to 2.5-hour long phone calls, having bank officials misplace the same set of documents three times and then patiently resending them, and dealing with people who couldn’t make a decision. Finally she was told she couldn’t qualify but she could get into the short sale program. When she asked if the representative who had been handling her case could see it through, she was informed she would have to start over with someone else at the bank.

At that point she decided the heck with it, stopped making payments and let the house go into foreclosure.

Some homeowners aren’t much better than some banks.

Realtors point to a Lodi case where a couple was getting a divorce, stopped making payments, and moved out. The bank started to take possession but then a water leak did $57,000 worth of damage that their insurance company covered.  Then one spouse moved back in.

The bottom line is the bank hasn’t been paid for 38 months and they still don’t have full possession of the home.

The prevailing attitude with many who have enlisted lawyers that zero in on documentation is that the bank should lower the loan balance to what the home is worth today. Yet story after story tells of those who have taken that route not making a single payment for a year or more.

The banks - and the nation as a whole - can’t let people hammer down the value of loans simply because the house is worth less.

There are a number of people underwater on their mortgages that would have no incentive - especially when they see other getting a free ride essentially on their dime - who could easily do the same thing.

It is similar to buying a car. The second you drive it off the lot it drops in value yet you don’t stop making payments nor do you go back to the bank that provided the auto loan and demand they reduce the principal since the car is now worth less.

Keep in mind that as painful as some of their stories are, the people who are picking up the tab are those who are responsible and honor their obligations or those who understand they can’t afford their house anymore and let them go.

Any major delay in getting the toxins out of the market in the form of housing that is either foreclosed or heading there way will only stretch out the economic pain for everyone.

There is no such thing as free houses as we all ultimately pay the price.
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