BusinessWeek takes a look in its good cover story at why the housing crisis is just going to get worse: The interventionist housing bill in Congress would only help out about half a million borrowers, conflicts between lenders are preventing them from working out loans, and homeowners are increasingly unable or unwilling to salvage their notes.
In so doing it runs through several of our least-favorite housing-story staples, including the mortgage-industry survey that found that fully half of all foreclosed properties have “significant damage”. It does well in not blaming the damage on ticked-off homeowners, as The Wall Street Journal has done, implying that the wreckage can result from vandals or from just sitting there unoccupied.
It also looks at “buying and bailing”—where homeowners buy a second house and then quit paying for the first—something another Journal story took on. BW says that the number doing that “appears to be small” so far.
This is interesting:
Even in situations where loan restructuring would limit lenders’ losses and benefit homeowners, deals are being stymied by a complicated system and conflicts between investors. For example, issuers of home equity lines of credit or second mortgages are lobbying for a piece of debtors’ money, even though contractually their claims have been wiped out. As creditors, they are so-called second-lien holders and stand in line behind the holders of the first loans, who themselves won’t be repaid in full. The second-lien holders often refuse to sign off on restructurings that would formally erase their claims. Without the second-lien holders’ approval, many homeowners who might have been able to stay in their homes with new loans are being forced out of them.
And the magazine says most mortgage-backed securities deals don’t allow for many workouts, limiting the number to 2 percent to 7 percent of the total in the pool, some of which have more than a third that are delinquent.
That’s a recipe for what it calls a “downward spiral” that will “start feeding on itself.” This is worth paying attention to: BusinessWeek has often been out front on the mortgage crisis.