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O'Malley's foreclosure prevention scam
BALTIMORE - There may be help on the horizon for residents whose security is being threatened by foreclosure.
A coalition of public organizations and advocacy groups will come together Thursday in an effort to develop a strategy to help stem the tide of rising foreclosure rates in the state.
“The objective is to bring those organizations that care about the issue of rising foreclosure rates together to look at trends … and find solutions,” said Doug Robinson, a spokesman for NeighborWorks America, a national nonprofit created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts.
The unvarnished truth is that most foreclosures happen because mortgage lenders and realtors have stretched too far to qualify people for loans.
Several years ago, the guidelines for approving a loan were that the combined principal, interest, taxes and insurance costs could not exceed about 28% of an applicant's gross annual income. That's assuming the applicant had a satisfactory credit and employment history. Now it's not unheard of for people to buy houses with expenses approaching 65% of their gross income. That leaves very little margin for unexpected circumstances.
When I was selling houses as a licensed agent, most people expressed discomfort even at the 28% level, but with the recent sellers' market hysteria, that healthy skepticism went out the window.
Moreover, ten or fifteen years ago, realtors were being encouraged by their brokers to go all-out to stretch the numbers and get minority buyers qualified, lest they be accused of some illegal discrimination.
The number of foreclosures has also increased as the loan-to-value ratios have increased. Within my lifetime, a buyer needed a 20% down payment, plus closing costs (primarily taxes) to become a home owner. Recently, between HUD lending programs and other economically unsound initiatives, it has become possible for a person to buy with almost zero down payment.
Economics aside, that is just bad business psychology. The less a person has at stake in a transaction, the more likely they are to walk away from it. That's the reason agents advise their seller-clients to reject or counter an offer that does not include a substantial deposit. Legally, a contract to purchase would be binding on the purchaser with a deposit of a dollar, but as a seller you'd be foolish to agree to such an arrangement.
The only thing that will reduce the number of foreclosures would be a return to sound lending practices. But politicians--elected, appointed or self-anointed--will resist this, claiming it's "unfair to poor people," or invoking the tired shibboleth about home ownership being "The American Dream."
Meanwhile, whatever has happened this week with O'Malley et. al. is mere window-dressing, an attempt for the aspiring governor to buy votes in a city where the quality of life continues to circle the drain.
musicnotes
There doesn't seem to be an easy way out of the inherent tension between
loan accessibility and the homeowner's ability to pay. Home ownership
rates are at an all-time high. Society has obviously decided it is more
important to get people into homes than it is to make sure they can afford
them. It's politically easy to call for solutions, but short of handing
out cash nothing can resolve this problem.