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Mortgage Modification: Avoiding the Traps

December 31st, 2008

The Washington Post recently ran a piece that warned of some of the pitfalls that await borrowers who wish to modify their mortgages. In particular, there are many unscrupulous operators who are willing to take substantial sums in upfront fees, but who then fail to deliver the most appropriate modification.

In fact, the worst for-profit modifiers often do not deliver anything at all. They just take hard-pressed borrowers’ money and run.

If you’re thinking of modifying your mortgage, you may find that a nonprofit advisor can help you for nothing. But–unsurprisingly in this climate–many nonprofits are overwhelmed by demand, and simply cannot respond quickly enough to urgent cases.

That’s when for-profit advisors may be the only alternative. By all means use one. But be very careful who you choose, watch them like hawks, and try to make sure that the bulk of their fees are paid only when a good deal is actually in place.

After rock bottom comes the bounce

December 15th, 2008

CNN is trailing yet another doom-and-gloom report. This one, which will be out later today, predicts that we’re less than three weeks away from yet another miserably depressing milestone. Read the rest of this entry »

Why Banks Make Economic Problems Worse (Why the Government had to Take Over Fannie and Freddie)

September 8th, 2008

Banks are famous for being willing to lend only when you don’t need it. Like the guy who hands you an umbrella when it’s nice and sunny–only to take it back at the first sign of rain–banks are unwilling to extend credit when it’s needed to restore economic stability. Why? Because the system is designed to reward behavior that is bad for society and punish conduct which is good.

For example, when money was cheap and pentiful, anyone who could fog a mirror was granted mortgage financing. Lenders couldn’t write loans fast enough, and the ones who wrote them fastest and loosest earned the most. Then, when economic conditions turned sour and money was most needed to restore order in financial markets, lenders took it all away and pulled back. Which made things worse and perpetuated the cycle. Because banks are businesses, and businesses owe a duty to their stockholders to make as much money as legally possible, current law reinforces this behavior.

So like it or not, government has to step in when the best decision for business isn’t the best for society. An article in the LA Times explains why we should care about the takeover of the two mortgage giants Fannie Mae and Freddie Mac. Experts predict that government control of Fannie and Freddie will ensure a certain level of liquidity in mortgage financing, keeping money available for those who should be granted mortgages and supporting the housing markets. Right now, banks and other mortgage lenders have no downside–when times are good they can lend early and often–and rashly. Then, when the bad loans come back to bite, taxpayers are asked to shoulder the losses. So a company doing its duty by its shareholders is pretty much obligated to exploit this loophole. It needs to be closed so that taxpayers can get out of the mortgage business.