The Obama administration's foreclosure plan has won plaudits for tackling an issue at the heart of the current financial crisis, but an exact pattern for identifying at-risk mortgages and how to restructure them has yet to be unveiled.
Alterations or "workouts" of troubled mortgages are key to stemming the nation's tide of foreclosures, say housing advocates and industry experts. The plan announced last week also creates a process to restructure loans, which will spur resolution of pending foreclosure cases, they added.
Curbing foreclosures also has implications for the housing market in particular and the economy in general. "The rise of foreclosure means more houses coming back on market which pushes home prices down further, depresses toxic assets further and continues to erode household wealth," said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Mass.
While lenders and servicers restructured nearly 2.3 million mortgages in 2008, the financial industry has been criticized for its slow response at processing foreclosures. In addition, housing advocates have said the industry has been too stingy with concessions to troubled homeowners, which they say perpetuates bad loans.
"The affordability piece is critical, otherwise the (workout) loans fail and we'll be modifying terms again," said Sister Barbara Busch, executive director of Working in Neighborhoods. a nonprofit housing agency in South Cumminsville.
The stakes are high. Industry estimates say the U.S. could see another 2 million foreclosures this year. The administration estimates 6 million Americans could face foreclosure in the next several years.
Southwest Ohio and Northern Kentucky saw foreclosures in 2008 respectively rise 7.5 percent and 17.2 percent.
Foreclosure filings in Hamilton, Butler, Clermont and Warren counties increased to 12,251 in 2008 compared with 11,397 in 2007. Filings in Boone, Campbell and Kenton counties climbed to 2,001 last year from 1,708 in 2007.
A Delhi Township woman's case illustrates how a workout may only delay and not prevent a foreclosure.
Shirley Nagy, a 63-year-old retired secretary for Cincinnati Public Schools, fell behind on her mortgage with Wells Fargo last year when her rate began to adjust after two years. Her monthly payments jumped from about $950 to $1,500.
"They wouldn't deal with me or accept partial payment," she recalled, noting she fell behind four months when she got a notice her lender would file foreclosure. She avoided losing her two-bedroom, single-bath home last spring when WIN helped negotiate a workout plan. read more
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. A mortgage loan is a secured loan in which the collateral is property, such as a home.
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