This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Foreclosures Are the Solution, Not the Problem

NEW YORK ( TheStreet) -- Former Federal Deposit Insurance Corp. Chairman Sheila Bair made some excellent points in her Washington Post Op-ed piece Monday but overlooked one important point: The U.S. needs to double down on foreclosures.

To the former regulator, forgiveness is the answer. Bair said that the banks had showed a "stubborn refusal to deal head-on with past-due and underwater mortgages," and that it was "time for banks and investors to write off uncollectible home equity loans and negotiate new terms with distressed mortgage borrowers that reflect today's lower property values."

FDIC Chairman Sheila Bair

True enough.

But why should the banks automatically write off any second-mortgage or home equity line of credit that goes delinquent? If word were to get out, any borrower who was actually in a position to comfortably make their first mortgage payment, plus a payment on a second mortgage, would seriously consider a "strategic default." They wouldn't lose their homes under Bair's plan.

Bair does place some blame on consumers, saying that leading into the credit crunch, "it became old-fashioned to save up for the down payment on that first home," and that "taking out a mortgage shifted from the most serious financial decision a family would make to a speculative bet on how far home prices would rise."

No, ramping up writedowns isn't the only answer. Want to save the banking system and restart the housing market. Why not also step up foreclosures?

Foreclosure has become a dirty word, but the regulatory onslaught has forced the largest banks to improve their loan servicing and foreclosure practices, and deals such as the recent $8.5 billion mortgage putback settlement by Bank of America (BAC - Get Report), actually spell-out myriad servicing, modification and foreclosure processing improvements.

So this is the time for banks to really push the foreclosure process, and maybe regulators and the rest of Washington crew consider process reforms to speed foreclosures through the courts.

Banks not only need to beef up their loan-modification efforts -- as Bair suggests -- but also greatly increase their mortgage foreclosure filings. Rather than taking a uniform approach, like Bair's brilliant write-off of any "uncollectable" second mortgage, the banks need to analyze each delinquent loan and make the decision that best services the bottom line.

Either way, it enables them to move forward and clear out the volume, thus helping the overall housing as well.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $16.74 1.10%
C $54.99 0.99%
JPM $66.33 0.38%
WFC $56.39 0.62%
AAPL $130.59 0.04%

Markets

DOW 18,076.41 +36.04 0.20%
S&P 500 2,115.78 +4.05 0.19%
NASDAQ 5,095.2580 +12.3290 0.24%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs