Some expressions may not be for polite company, but they can often have more than a kernel of truth to them. When it comes to economists and the über-mavens of the blogging “intelligentsia,” the (cleaned up for my readers) phrase “opinions are like derrières — everyone has one,” comes to mind. Despite all the rhetoric, failed “solutions” and ever-more complicated proposal, strategic defaults and housing inventories continue to swell. Wave after wave of homes are regurgitated from the banks that continue to suck them in and spit them out. There’s got to be a reason that the banks refuse to cooperate with plans to keep people in their homes.As usual, the bean counters have it all figured out. Just follow the money — there must be more of it in the foreclosure business than in the mitigation business or any other plan to keep people in their homes. As long as the banks gain more revenue from foreclosing on a home than in compromising with the homeowner, they will always choose the former. The banks are nothing if not predictable, and they’ll have no qualms about milking this gravy train for as many years as it is profitable. Why not, these loans aren’t performing anymore and they made all that money in securitization and handsomely invested the taxpayers’ TARP funds to boot. Just don’t let the cure cost them anything.
Why were such a small percentage of eligible homeowners approved for Help For Homeowners and other fixes? Weren’t the servicers paid a fee to incentivise approvals? JP Morgan Chase, Wells Fargo , Citigroup and others were “too big to fail” but not big enough to lend the bail out money and provide needed stimulus for businesses and consumers. And despite the cost of each foreclosure and the seemingly infinite number of them, the big banks are doing pretty well, thanks to Uncle Sam’s largesse.
The government knows that if everyone could refinance their mortgage to the current lower rates, people would more benefit than the reduced payments and money left over at the end of the month. Homeowners have good reason to feel like they’re treated unfairly, especially when they compare their lot to the bankers and Wall Street-types who get their bonus while the rest of us flounder. High unemployment (or the anxiety that comes with knowing your job may be on the chopping block), combined with their loss of equity and diminished portfolios, doesn’t exactly inspire confidence. They look around and wonder how anything is going to improve with all the gridlock and the never-ending doom and gloom of raucous partisan ideologues. No wonder sales of Pfizer’s Xanax and Zoloft are through the roof.
It’s difficult for people to accept the “New Normal” and the lowered expectations for the American Dream — it’s a foreign concept no one expected for themselves and their kids. Jimmy Carter’s presidency is remembered for its malaise. Ronald Reagan, on the other hand, inspired the nation by making people feel good about themselves and their country despite the long-term disparities and problems caused by his trickle-down policies. Bruce Bartlett, the author of “Reaganomics” in 1981, wrote “The New American Economy: The Failure of Reaganomics and a New Way Forward,” after the meltdown. Nonetheless, the “Great Communicator” made people feel confident enough to spend their money. When it comes to short-term economics, perception truly is everything. Today, the economy needs the inspirational candidate Barack Obama much more than the professorial President Barack Obama.
What we need is a mental, not just a fiscal stimulus to get people back to buying houses and cars or even a few dinners out. The economy doesn’t necessarily run on oil or housing or even banking. It’s fuelled by confidence, and confidence is the impetus for spending. So why can’t more people refinance, save money and feel better about their situation and the country and start spending? Even if they can qualify for a mortgage, which is far from a given these days, anyone with a second mortgage who wants to refinance is blocked from doing so by the second mortgage holder.
Defying all logic, second mortgage holders will not subordinate. What this means is that when you refinance your first mortgage, before it can be recorded, the second mortgage holder has to agree to simply stay in second position — to be paid off in the same order as before the refinance. They refuse despite that the fact that any risk analysis — the basis of any lending decision — would clearly indicate that anyone getting a lower payment on their first is now more likely to pay up, lowering the risk of a default for either lender.
Of course, it was these same lenders who encouraged everyone to have second mortgages and equity lines. Just in case of emergency, they said. But for your convenience, use this credit card to slap on your everyday purchases to the long term debt on your home. Remember the message after 9/11, “Go shopping, it’s good for America?” Good old George Bush, how will history judge him? Most people had a hard time not using their own personal ATM machines while home values doubled during all that irrational exuberance. As in every Ponzi scheme, the end was not pretty. The voracious appetite for credit was only exceeded by the carnage that followed — and the banks, as W.C. Fields used to say, “won’t give a sucker an even break.”
Someone tell me why the banks are unwilling to subordinate second mortgages in the first place? Why allow the second mortgage holder to block the process at all when they lose nothing from the transaction? The government should outright prohibit this practice through regulation or law. My plan can start tomorrow morning and is guaranteed to slow strategic defaults. Any policy that facilitates more refinancing and creates the necessary currency of emotion is the only stimulus needed to ignite spending and propel us from a jobless recovery to one with real, sustainable growth.
The government says they want everyone to refinance while they and the powers that be keep interest rates low for as long as they can. Apparently, however, they’re not the only powers that be. The banks had no problem taking our billions when they needed it. We’re not asking for much in return.
Stan Blacker is President of Mortgage Resource Partners in Clearwater, Florida.
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