Loan Modifications Failing to Reduce Foreclosures?

As reported by CNNMoney.com - "FDIC chief: Intervene on foreclosures":

The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.

"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.

According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.

Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.

Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.

Foreclosures still growing in large numbers:

... Nearly 280,000 struggling homeowners received some kind of foreclosure notice during October, according to RealtyTrac, a 25% increase over October 2007. And nearly 85,000 families actually lost their homes, up 59% year-over-year.

Those increases illustrate the difficulties in getting foreclosures under control, including resistance from the investor community - the individuals and organizations that purchased many of these at-risk loans as mortgage-backed securities.

"The legal authority is there to modify loans, but there are conflicting economic interests on the part of investors [in mortgage-backed securities]," Bair said at the Fortune 500 Forum.

These mortgages have been broken up into classes or tranches, as they are called in the industry. The senior tranches have first claim on assets should the loan fail. Other tranches have a secondary claim on assets.

In a modification that reduces the value of an investment, "The senior claim may be okay but the lower tranches could get wiped out," said Bair.

In concluding:

She (Bair) told the Fortune 500 Forum that it's not too late to step up foreclosure prevention initiatives.

"The sooner we do it the better," she replied. "I see higher delinquencies growing through 2010."

Acting now would help many families who would otherwise lose their homes. And that would benefit everyone.

"Attacking the financial problem at its roots is the fiscally responsible and smart thing to do," she said.

We don't know about you, but we're not holding our breath. Our government has been disgustingly inept in handling these housing and economic problems and there is absolutely no reason to believe that anything is going to change now. We're at the point where it's every wo(man) for themselves. This is what we get when no-one is paying attention - the majority of the American people included!

Just think, give all this a few years and we'll be breaking out the champagne cheering the beginning of doing this all over again.

Real Estate and cycles. They can't exist without each other, without us either!