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FDIC wants more loan modifications, fewer foreclosures

By: 23 January 2011 One Comment

FDIC Chairman Sheila C. Bair

Here’s a newsflash — foreclosures are still plaguing the real estate and mortgage industries.

The amount of foreclosures in the nation has prompted Federal Deposit Insurance Company (FDIC) Chairman Sheila C. Bair to declare it is in the best interests of borrowers and lenders to pursue loan modifications.

We all know the story by now. People got in over their heads with either subprime or — in some cases — prime mortgages and the ramifications have  been severe. Entire neighborhoods stand nearly empty in some parts of the nation and home values have been dragged down as a result of a glut of homes in foreclosure. After all, who’s going to pay, say, $200,000 for a home when a similar one down the street is in foreclosure and is available for considerably less money?

It doesn’t appear we’ll see fewer foreclosures in the near future unless something radical happens. A few months ago, Kathy Deck — director of the Center for Business and Economic Research at the University of Arkansas — said she expects foreclosures to remain a problem through at least the first quarter of next year. Why? A lot of those homes in foreclosure were purchased with subprime loans.

Quite often, those subprime loans allowed a buyer to get into a home at a low rate and not worry about unfavorable terms — such as the interest on an adjustable rate mortgage — kicking in for five years. The subprime lending industry pretty well collapsed in 2007, meaning a good number of loans were written up until that time. To that end, we’re likely to see some troubled loans for quite some time.

To confuse the issue even further, the foreclosure processes used by some in the mortgage industry came under fire last year. We’ve had questions about whether the paperwork filed in those actions was adequate, investigations by the federal government and attorneys general throughout the nation and just a lot of questions about foreclosures that might not be answered until later this year.

The foreclosure mess prompted the national Mortgage Bankers Association and other industry insiders to form a task force — the Council on Residential Mortgage Servicing for the 21st Century — to take a hard look at the entire loan servicing industry and suggest ways to establish a stronger, less risky credit system.

On Jan. 19, that task force met in Washington, D.C., and heard testimony from Bair. What is her recommendation for building that stronger credit system in hopes of avoiding a future rash of foreclosures?

“The bottom line is that we need more modifications and fewer foreclosures. When foreclosure is unavoidable, we need it to be done with all fairness to the borrower and in accordance with the law,” Bair said. “Only by committing to these principles can we begin to move past the foreclosure crisis and rebuild confidence in our housing and mortgage markets.”

Will we actually see more loan modifications? If so, what opportunities will be presented to borrowers so they can avoid foreclosures? Those questions remain to be answered, but we at First Arkansas News will continue to follow the foreclosure issue and report on any developments.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email =

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