W hoa. Everyone take a deep breath. The foreclosure situation is bad. Rates are up over the past year throughout the Baltimore region, as is debt. But do we really need the governor?s cure, now being advertised via newspaper, billboard, radio or postcard near you?
Earlier this year, Gov. Martin O?Malley created a loan program that doles out zero-interest “gap” loans to help troubled homeowners. He also created emergency regulations requiring lenders to notify the state when a homeowner is near foreclosure. Legislation passed by the General Assembly and signed into law by him last month extends the foreclosure process from 15 days to 150 and creates significant fines and imprisonment for those deemed to have defrauded homeowners, especially “vulnerable” ones.
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All of these actions were taken in the name of preserving the American dream of homeownership.
For those who want to keep their homes, these programs can help.
But many people do not want to keep properties whose value is much lower than when they purchased it.
As Keith Carson, a senior consultant with credit company TransUnion said, “the greater the decrease in property values, the higher the level of delinquency.” As prices drop, “the incentive to keep paying is diminished.” This is true across the income spectrum. Reports across the country highlight homeowners who choose to stop paying because they will never get their money back. Last week, baseball great Jose Canseco walked away from his California mansion because it didn?t make “financial sense.” For those who can?t pay, the governor?s program only prolongs their difficulty, as moving to a different area could give them a chance to start over and to make more money ? or start making money again for those who have lost jobs.
The programs also extend the amount of time it will take for the market to correct itself, and help those whose practices the governor condemns by boosting lender revenue on properties they would have otherwise been forced to repossess and sell at a bargain price. As a result, this hurts the ability of those waiting patiently for a market downturn to buy a home.
The vast majority of people do not need help. Even in Baltimore City, whose 4.11 percent foreclosure rate at the end of 2007 is about twice as high as the rest of the region, 96 percent of homeowners are OK. Must the rest of us subsidize people who may not want to stay in their homes and the lenders who made a ton of money on those adjustable-rate mortgages in boom times?
The state would have better served citizens by monitoring mortgage fraud while it was happening instead of trying to play catch-up after the fact. But as a recent Department of Legislative Services audit shows, the Department of Labor, Licensing and Regulation neglected basic duties in monitoring lenders reputedly under its scrutiny. The new laws won?t do anything to banks, who on their own are tightening lending standards across all loan categories as a result of loose practices that put them in their current predicament.
Lenders and borrowers who committed fraud must be prosecuted for their crimes. But when it comes to state bailouts, this is a case where doing nothing would be better than doing something.
