Woodstock Institute identifies trends and impacts of the foreclosure crisis and works to limit foreclosures’ negative effects on communities.
When you drive through a distressed neighborhood and see blocks upon blocks of boarded-up houses, you might think that some lender is desperately trying to get those properties off its hands. Some of those homes, however, might not even be on the lender’s radar: they’re sitting in a sort of legal limbo where the lender refuses to complete the foreclosure and the homeowner is long gone. Woodstock Institute is releasing a report later this week that examines what happens when a loan servicer decides that it’s not worth it to pursue foreclosure and the property sits vacant, a phenomenon known as a “lender walkaway.”
Woodstock Institute is back to the business of advancing economic security and community prosperity after celebrating the holidays with our loved ones. Here are some stories on dangerous medical testing, shoring up the US Postal Service, subprime lending and the foreclosure crisis, the (surprisingly) long struggle to cap payday loan rates, and more that sparked the interest of our staff while we were out:
Credit-default swaps. Derivatives. Collateralized debt obligations. Mortgage-backed securities. How many people on the street do you think could accurately define these terms? These financial “innovations” play a critical part in the story of the financial crisis, but average Joes—even above-average Joes—struggle to understand the role these instruments played. At our screening and discussion last week of “Plunder: The Crime of our Time,” journalist Danny Schechter proposed a framework for discussing the financial crisis that relies less on financial wonkery and more on a moral narrative.
A couple weeks ago, we wrote about some new Treasury data that found that most borrowers whose HAMP modifications were cancelled have not yet lost their homes. We decided to dig a little deeper into the data and look at what individual servicers are doing with borrowers they did not approve for a permanent modification (click for larger chart):
Consumer advocates have presented the underwhelming impact of the Home Affordable Modification Program (HAMP) and the foreclosure “robo-signing” scandal, in which employees of loan servicers allegedly fraudulently signed off on foreclosure documents, as two sides of the same coin: both demonstrate a disregard of due process on the part of the servicers. In one situation, servicers drag out trial modifications well beyond their time limit and give homeowners the run-around by repeatedly losing documents, then deny modifications because of “incomplete files;” in the other, servicers entrust the job of affirming the validity of foreclosure papers to poorly-trained and overworked employees, possibly unjustly risking borrowers’ homes.
The Home Affordable Modification Program continues to putter along this month, with numbers of active trial and permanent modifications in the Chicago region staying largely level (see our previous analyses). There were 32,997 active modifications in the region in October 2010, up 0.36 percent from last month’s 32,880. However, new data from Treasury shows that the large number of homeowners who have been dropped from HAMP—at least 18,000 in the Chicago region—are not yet losing their homes in large numbers.
The longer this foreclosure crisis drags on, the clearer it is that voluntary loan modification programs are inadequate to meet the needs of millions of borrowers with homes worth less than the mortgages. A recent commentary published by the Federal Reserve Bank of Cleveland shows how an old tool could be used in this new context to help underwater borrowers.
As it becomes increasingly clear that voluntary loan modification programs like the Home Affordable Modification Program (HAMP) are woefully insufficient to prevent foreclosures on a meaningful scale, it’s time to consider broader-reaching approaches. The debate on allowing bankruptcy judges to modify the terms of mortgages on primary residences (often referred to as “judicial modification” or “cramdowns”) has quieted down since 2009, when Sen. Dick Durbin (D-IL) introduced a bill that would allow mortgage debt on primary residences to be restructured in Chapter 13 bankruptcy. The bill, called the Helping Families Save Their Homes in Bankruptcy Act (S. 61), didn’t pick up steam. As our president Dory Rand will argue later this week, new analysis has shown that concerns about the negative impacts of judicial modification are likely overblown. Before we take a new look at judicial modification, let’s review what it entails (special thanks to Credit Slips for providing a wealth of information about mortgages in bankruptcy).
The number of active trial and permanent Home Affordable Modification Program modifications continues to drop in the Chicago region, according to new data released by Treasury. The past three months have seen active modifications drop to record lows (see our previous analyses). There were 32,880 active modifications in the region in September 2010, down 1.4 percent from last month’s 33,346.
Froylan and Amparo Nuñez remember what their block in South Chicago was like back in the day. Good jobs were still available at the steel mills nearby and their son, Froilan Jr., played next door with his friend Hector.
Times have changed. The Nuñezes now have little granddaughters. The steel mills have long closed, and Froylan Sr. ended up working on a garbage truck for nineteen years. And their little bungalow, as Ashley Gross reports for Chicago Public Radio, is an island of stability on an increasingly troubled street. Hector’s old house is now boarded up and tagged by the Latin Dragons, who use it as a drug house. While some of the homes are neatly tended, clusters of boarded-up homes attract garbage and foster gang activity and drug sales.