Foreclosure plan stirring debate

Whether President Obama's mortgage foreclosure initiative works or not, is it the right thing to do?

That's a matter of debate, and many believe there is no way to fix the tight financial situation and be fair to everyone.

Some look at the proposals and question the ethics of the consumer assistance: letting people refinance even though they owe more than the house is worth; subsidizing interest rate cuts by lenders; and empowering bankruptcy judges to adjust the balance due on a mortgage as part of a plan to let the debtor get back on his feet.

"We didn't buy over our heads," said Bill Mulhall of Cape Coral, who considers himself a responsible homeowner. "We did straight fixed rate. Essentially they're rewarding people that took on more then they could handle."

Mulhall, a software consultant, bought a home in the northwest Cape in late 2005 just before the crash.

"I tried to refinance a year ago," Mulhall said. "I couldn't."

But others say Obama is doing what needs to be done for the country's good.

"I think overall he's done absolutely the right thing," said Dawn Marie Driscoll, a Cape Coral-based ethics consultant. "No plan is going to be perfect but he's stepped in dramatically to begin to solve the problem."

The problem, she said, is creating programs that will translate to fair treatment of people. "That's complicated because, as in any great ethics dilemma, there are many competing interests and competing values."

Some people shouldn't have signed up for mortgages they find themselves unable to pay, for example, but "perhaps they were misled by mortgage brokers who have long since fled the scene," Driscoll said.
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Now, she said, "The challenge is how you balance all these interests of conflicting parties," hopefully by encouraging debtors and lenders to reach an accommodation acceptable to both.
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But exactly how that's done can ruffle the feathers of those who stand to gain or lose.

The bankruptcy provision for example, is strongly supported by attorneys, especially those like Fort Myers-based Charles Phoenix, who hopes Congress acts quickly to make primary residence loans subject to the same purview in bankruptcy court as other debts.

It's unfair to consumers that, other than home loans, "Any secured debt on the planet - a high rise in New York City, a shopping mall in Los Angeles, a log cabin in Kentucky - can be adjusted in bankruptcy," he said.

Congress put in the provision exempting home loans in 1979, Phoenix said, and "I think it's something that's long, long, long overdue" to remove it.

But Bill Valenti, president of Florida Gulf Bank, said removing the exemption is a bad idea that would undermine contracts and create the possibility of unfair treatment by judges around the country. "A California judge might do it differently than a Michigan judge."

Driscoll said giving bankruptcy judges more power might let them make decisions that benefit all concerned.

In the case of a home mortgage sold to Wall Street and then sliced up among a number of owners of mortgage-backed securities, for example, "Somebody has to make the decision they're going to renegotiate the loan. I think from an administrative standpoint, the Obama administration says everything's stuck, we can't make progress until we get these mortgages unstuck," she said.
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That way, at least, the owners of the mortgage are at least getting something and "communities are going to be stabilized. The debtor is going to be able to stay in his house," Driscoll said.
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Obama's plan doesn't give relief to people who bought houses as investments, not to live in.

That's the right thing to do, said Crista Britton, a mortgage broker with Dream Mortgage in Cape Coral. "If you bought five homes and let them all go into foreclosure, that's criminal."

But even people who bought a house to live in don't get a pass from some when they bail out of their mortgages and other obligations after things get rocky.

"Who created the problem? Every one of us has a degree of guilt," said Mahlon Hetrick, who runs Christian Financial Counseling in downtown Fort Myers. "People running up credit cards they can't afford, buying cars they can't afford, buying houses they can't afford, banks making loans to people who can't afford them."

Jim Neal, a real estate agent with Sun Realty in Bonita Springs, agreed that Obama's plan by itself will not solve the problem.

"If you can keep people in their homes, that's only going to help our economy," he said. "There are still people here working who can afford their mortgage, but when it adjusts in three to four years, they'll just walk away."

But Neal believes Americans share the blame for living beyond their means.

"We got too big for our britches," Neal said. "We got money for next to nothing and spent it all. We became a spoiled society. Now it's an adjustment period getting back to reality."

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