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Oh Where, Oh Where have all the foreclosures gone
In a surprising turn of events, the Government-Sponsored Enterprises (GSEs) have already completed over 60,000 foreclosure prevention actions in 2023. This decision has left me personally perplexed, as it entails keeping 60,000 individuals in homes despite their inability to make mortgage payments, instead of aiding 60,000 aspiring new home-builders who would be financially capable of fulfilling their obligations.
According to a recent report, 16% of home modifications in the first quarter involved principal forbearance, while 35% of loan modifications completed during the same period resulted in reducing borrowers’ monthly payments by more than 20%. However, the number of refinances decreased from 111,251 in the fourth quarter of 2022 to 78,445 in the first quarter of 2023, attributed to rising mortgage rates.
The graph
They say that insanity is doing the same thing repeatedly while expecting a different outcome. However, what can we say about a situation where we repeat the same actions but anticipate an even more adverse result? This is precisely what is happening right now. Allow me to illustrate this with a graph.
The graph depicts the Federal Housing Finance Agency’s (FHFA) foreclosure prevention actions dating back to the beginning of 2008, when the housing crisis struck. It is crucial to note the housing bubble in 2008, which led to a surge in foreclosed homes, causing housing values to plummet and reach what we now consider historic lows.
Now, shift your attention to the right side of the graph. Notice how much larger the current peak is compared to 2008. So why are we not experiencing a significant increase in foreclosures, and why are property values not declining?
The answer lies in the blue portions of the graph, which represent repayment plans, forbearance plans, and payment deferral plans. These options have been implemented by the government to allow homeowners to temporarily forgo their legally obligated mortgage payments. This crucial distinction sets the current situation apart from 2008 when we held individuals more accountable, resulting in a wave of foreclosures.
In 2008, foreclosures were represented by the red color at the top of the graph. However, notice how foreclosures nearly ceased to exist when the forbearance programs were implemented. Therefore, the moral of the story becomes clear: If we desire to lower property values, combat inflation, bolster city tax revenues, and overall improve our communities, we must take action against those individuals who are not fulfilling their payment obligations. This approach worked during the 2008 crisis, and it can work now.
Poof, and they’re gone!
The decision to complete 60,000 foreclosure prevention actions in 2023 has left many puzzled. While these measures aim to provide relief to struggling homeowners, they inadvertently disregard the potential benefits of supporting new home-builders who can make their payments. By analyzing the graph of foreclosure prevention actions, it becomes evident that our current approach, focused on preventing foreclosures at all costs, may have unintended consequences for the housing market and our communities as a whole.
