Foreclosures Lead to Altered Behaviour by Lenders
Foreclosure expert, Jeff Adams, looks at the implications behind the Countrywide moves to save 81,000 American homes from foreclosure. Countrywide Financial Corporation, America’s biggest mortgage lender and now part of the Bank of America Corporation, made headlines when it announced that it had restructured 81,000 mortgages in order to permit borrowers to avoid foreclosure and stay in their homes.
You would expect a foreclosure expert, like me, who has often stated that foreclosures are part of the balancing mechanism of our free market economy and a means for the real estate and mortgage lending system to self-correct, to say that this is disastrous news.
In reality nothing could be further from the truth. The fact that Countrywide has bowed to both government and public pressure is absolutely great because it highlights exactly what I have been saying all along. Foreclosures, sad as they may be in their reality, also represent a correction mechanism and an opportunity to release money which would otherwise be locked up tight in the debt part of our economy, but this only works when they are a true, representative and therefore ‘normal’ part of our economic model.
In the case of Countrywide the implication has been that many mortgages were oversold using aggressive selling practices and this is leading to an eschewed picture of the real estate market with more foreclosures coming to light than there normally should be.
A system out of control is no good to anybody. It does not help lenders, it does not help real estate investors who need to find the right kind of foreclosure and it does not help home buyers and mortgage investment institutions all of which need to have a certain faith in the system before committing themselves in any way.
The Countrywide announcement is the best indication yet that the current crisis we face in our country with foreclosures increasing exponentially as a result of predatory selling practices is leading to a reform, sometimes a voluntary one, of the mortgage selling code. This means that the real estate market will soon be in the robust state of health it was before the crisis hit. House prices will start to rise again. Real estate will be a good investment area to be in and the mortgage lending market will stop getting the bad publicity it has been receiving.
Because there truly never is a cloud without a silver lining the lessons learnt from this crisis will serve to make sure that the U.S. real estate scene goes, once more from strength to strength, and continues to deliver solid value to our economy.
Additional legislature by the government at federal level will probably mean that these hard-earned lessons will not easily be forgotten and the U.S. real estate industry will learn that unchecked, predatory selling is a short-sighted goal that delivers quick profits in the short term but only results in greater damage in the long run.
Jeff Adams
Comments(0)