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It’s been a big news week. We had an 80 percent increase in foreclosure filings between July and August for the county. And the Fed cut rates in response to growing trouble in the housing and mortgage markets nationwide.
I’ve been e-mailing back and forth about the news with Mark Goldman this week. Goldman’s a real estate finance consultant and mortgage broker with Windsor Capital Mortgage Corp. He’s also the guy who was interviewed with me on KPBS’s “These Days” radio show earlier this year when the subprime crunch hit. I thought you might appreciate reading some of his thoughts on this, too.
I asked Goldman: The reasons for foreclosures ramping up the way they have in recent months have been well-publicized, but why the huge jump from August to July? And what about the Fed cuts? Will anything change for local borrowers or homeowners?
Here’s some of what he had to say:
I do not think the fed cut will produce any relief for homeowners facing foreclosure. The rate cut affects short term rates (like prime rate) and has little impact on mortgage rates in the near term. Further, the rate cuts are not going to start attracting cash back into the mortgage backed securities to make aggressive loans available for the people whose rates have reset higher while the value of their homes has declined. Finally, the main problem is lack of equity because home values are not rising (and in many cases, declining). The rate cut will not spur more confidence in home values.
And the foreclosures?
The increase in foreclosures, in my opinion, are the result of the confluence of two events – a soft real estate market with eroding values AND the elimination of so many loan products for people with no equity and limited credit and income. The subprime market melted down at the end of July/beginning of August. And here we are. As soon as the money was shut off, owners confronted their Minsky Moment. I believe foreclosure rates will continue to increase as families who cannot afford their new reset payment have to capitulate to the market realities.
This next part, I thought, was particularly interesting. A lot of what I’ve heard about the real estate boom is that no matter what a potential borrower said, a loan officer or mortgage broker had an answer. No down payment? No problem. Haven’t been able to pay off credit cards? Don’t sweat it. That’s how 100 percent, stated-income subprime loans grew into the monster they became. And on, and on.
But now, Goldman said, lenders are growing speechless.
There is a deafening silence if you ask a lender what a borrower should do when confronted with their new payment, that they cannot afford, when they are upside-down on their home. There are no offers of a solution or a realistic strategy. To me, it is like watching a train wreck in slow motion. You know what the outcome will be, but there is no way to stop it. … The sad truth is borrowers who cannot modify their loan or obtain a forbearance either have to pay the higher payment, if they can, or face some tough decisions about their credit.
The problems are exacerbated buy charlatans and hoaxers who are preaching solutions while allowing their victims to fall further behind, which reduces access to remedies.