Monday, April 21, 2008

AS FORECLOSURES RISE AMERICAN HOMEOWNERS ASK: IS HELP IS ON THE WAY?

As home foreclosures mount, Americans are asking: When will we see some relief and a return to a normal real estate market?

RealtyTrac, Inc., a California-based research firm, reported foreclosure filings in the U.S. catapulted 57 percent to 234,000 homes in March compared with a year earlier, as more and more of those wacky adjustable-rate mortgages reset at sharply higher rates.

When veteran real estate watchers review the past year’s events and the subprime mortgage meltdown, it’s like watching scenes from the movie “Titanic” with panic stricken borrowers as the stars of the tragedy.

A recent editorial cartoon by Mike Luckovich of the Atlanta Journal-Constitution depicted this Titanic-like scene: A is ship sinking and dozens of people are floundering in the ocean. Overhead, the pilot of the rescue helicopter says:

“Attention, if you’re the ship’s captain, its investors, or manufacturers, we’re here to rescue you.” But, what about the thousands of hapless homeowners?

As the nation’s economy stalls on the brink of recession, there are rescue moves underway. The Federal Reserve has taken the boldest action since the Great Depression, invoking rare powers in an effort to contain a panic that threatens to undermine the economy.

In addition to pumping more than $300 billion in bank loans into the economy in recent weeks, the Fed has slashed its key short-term federal-funds interest rate to 2.25 percent, the sixth reduction since September.

It took months for the Senate to pass the Foreclosure Prevention Act, a package of legislation that includes tax breaks for builders and a $7,000 tax credit for people who buy foreclosed properties, and $4 billion in grants to buy and fix up abandoned homes.

However, experts say the Senate package is destined to be redrafted in the House, and the White House opposes the plan, meaning a million of middle class homeowners likely are destined to lose their homes.

Experts agree that the mortgage mess was caused by greedy loan-makers, computerized appraisals and loan approvals. Then, the subprime loans were peddled to Wall Street investors, who never met the cash-strapped subprime borrowers. They rolled the potentially bad loans into securities and sold them on the international market.

What should we do in the future to avoid another mortgage mess?

“We need to return to the era of prudent lending,” insisted mortgage veteran Ed Kane, senior vice president of Lincoln Park Savings Bank, who believes the real strength of the nation’s home-loan industry likes in small neighborhood banks

who “lend money the old-fashioned way.”

As a young lender, Kane asked his grandfather: “How do we know a mortgage borrower will pay the money back? He said: ‘Look the borrower in the eye and you’ll know.’”