Who's At (De)Fault?

An interesting article in today's Chron raises the questions about what happens when defaulting on debt no longer carries much of a stigma. Up to 25% of foreclosures are occurring because homeowners simply walked away from their home; something what was all but unthinkable for previous generations. For those with a talk radio viewpoint on this subject, the piece makes the notable point that it's not just individual homeowners who are walking away from financial obligations. Developers are abandoning multi-million dollar projects. And, of course, we all know about the Wall Street bailouts, which resulted from similarly reckless behavior, with consequences softened only by the government's golden trampoline. We'd be interested in hearing what readers think about everyone from homeowners to Wall Street brokerages getting into trouble from which they cannot recover. Has fiscal accountability become a national afterthought? And if so, is this a temporary phenomenon or a permanent shift in how Americans view debt and risk? Can the shame of being a welsher ever be recaptured? (I'm one quarter Welsh, so I think I can use that word.) Should it be?

Rubber-necking Real Estate

Sometimes it's hard not to look. If you're curious to know more about foreclosures in Marin, check out the IJ's forclosure database. Please note, however, that while this information is public, it's also personal. Let decency prevail. You should also know that many home listed as "in the foreclosure process," will never become bank-owned. These days, most people attempting to do loan modifications are being advised to go into default on their mortgages. This starts the foreclosure process. In many of these cases, the lenders will modify the loan before the house is reposessed and the owners will remain in possession.

Default Setting

Marin IJ or SF Chron: two sources for the same info. Notices of default were down last quarter, but we're not ready to draw any conclusions yet. There are too many forces at play in the marketplace right now to say whether a trend can sustain.

On My Soap Box

Ordinarily I try not to choose sides in the mortgage crisis debate. Was it caused by irresponsible borrowers, unscrupulous lenders, greedy investors? Short answer, yes. There's more than enough blame to go around.

But when I read an article in the Times yesterday morning about mortgage service companies dragging their feet on loan modifications because they can make more money from delinquencies and foreclosures...well, my stomach turned.

As many of you know, many home loans are owned by investors, but serviced by mortgage servicing companies. These companies collect and disburse payments and, among other things, notify borrowers who are in default. They also are responsible for negotiating loan modifications and/or short sales for borrowers in distress. While the new Obama administration plan offers financial incentives for mortgage service companies to modify loans for borrowers in distress, the Times article reveals that they can make far more money by allowing borrowers to languish in default.

We happen to know people who are working to get their loans modified. While these people are not clients of ours, they have sought our advice as friends and professionals. I have been amazed (though not surprised) by the challenges they've faced. It is all but impossible even to get a mortgage service representative on the phone. I chalked this up to gross understaffing are mortgage service companies coupled with the backlog of borrowers seeking relief. It appears that the reasons may be far more insidious.