Government Interference Delays Solving TheProblems In his latest misguided proposal,Obama wants to halt all home foreclosures until the borrowers havebeen afforded 5 chances to get a modification. 1. Governmentinterference in the sorting out of distressed markets is never goodunless it is in the form of the RTC which was able to simply seizeassets and resell them to the highest bidder. The Japanese havepainfully learned that the market needs to clear itself at whateverthe market clearing price is. 2. The proposed program is nothingbut price fixing. 3 The program assumes borrowers are allresponsible and well meaning, and they want to have a modification.4. This is another example of the Democrats thinking they knowbetter than the market and the rest of us.Reality is most troubledloans are held by homeowners who are either speculators, or byirresponsible borrowers who were simply greedy and did not care ifthey lied on their application or that they knew they could notafford the house. I have been in the business of buying residentialmortgages. The entire culture of borrowers has changed. Even thosewho are true homeowners, and not speculators, have no sense that itmatters to keep your mortgage current. Such thinking is furtherencouraged by the liberals who think it is the big bad banks whoare wrong and not the borrowers.When we tried to modify loans wefound it was often impossible to communicate with the borrower.They did not answer calls or letters. It was often necessary tosend a person to the house to make contact and then it was usuallya waste of time. People at the low end of the income ladderhave generally low credit scores and so it does not seem to botherthem that a default on their mortgage will hurt their FICO score.After all, Obama and Pelosi tell them they are not at fault andthen the government offers to help them in their defaultingbehavior by telling the banks they can't act. What message doesthat send. In many states now the local courts are as bad and it isvery hard to foreclose. This just reinforces the concept that as aborrower I can do as I please and they can't bother me. Borrowersview is this is a way to live in the house rent free for a year ormore, no mortgage payments, no rent, and when they finally throw meout I rip out the appliances and sell them for a couple of thousanddollars. In short, the government has created a whole new culturethat there are no bad consequences to default and beirresponsible.All they have done is delay the inevitable, cost thebanks millions of wasted dollars chasing ghosts, and they keephouse prices artificially high by not letting the defaultedinventory reach the market quickly to once and for all set a realprice. This keeps poorly maintained houses in the neighborhood andhurts everyone. Investors who buy foreclosed houses generally spend$8,000-$12,000 per house to paint, re-appliance and fix it for newtenants or owners. This upgrades the area and the overall qualityof low cost housing. It resets the pricing to where it belongs.That helps everyone.In addition, just as they did in Chrysler, thegovernment is proposing to interfere in contract rights which willhave substantial negative consequences on future pricing and creditapprovals, thereby hurting the very people they claim to behelping.If Obama, Barney and Pelosi keep this trend of blame thebanks, interfere with contract law, and protect the irresponsibleborrowers, then we will have unintended consequences for many yearsto come which will grow to a problem of major proportions.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.