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|
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), 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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV