Archive for June 17th, 2008

Lenders are promising a “quick response” to distressed borrowers’ applications for assistance: 45 days. 45 days is fast?  45 days is glacial. What is slow?

45 days is long enough to get 2 additional 30-day late payments on your credit report. It takes two days to underwrite a loan; a hardship package is virtually the same material, so what they need the other 43 days for is a bigger mystery than Transubstantiation.

Just exactly what help they qualify for is unclear in the article. Politicians and consumer groups are less than enthusiastic about the pledge, and I share their skepticism. 45 days for a response, exactly what response qualified applicants will get, what contingencies are available for those who do not qualify, and what the criteria is for aid are all questions that loom large. If the decision makers are the same birds who came up with these exotic, irresponsible loans, no thanks.

Here is what lenders and borrowers need to understand: re-structuring loans, adding back payments to the end of the loan, and other bandages only delay the inevitable. The best way for all involved going forward is for more distressed borrowers to sell the home they can no longer afford and get into housing they can handle. If that means going from an over-leveraged house to a rented apartment, so be it. Better to rent and have a positive cash flow than to “own” at the expense of an already beleaguered credit system. If the only way to sell is via a short sale, the lenders should eat the difference and staple the quarterly loss to the forehead of their executives so this fiasco never happens again.

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This comment on this blog post at ActiveRain resonates. My question is more succinct, but needed to be asked. Activerain, by the way, has a fair amount of good content.

There is plenty of blame to go around, from brokers to agents to appraisers to Wall Street, and, of course, borrowers themselves. However, the large lenders who invented the Sub-Prime ponzi scheme betrayed the public trust in the most insipid way. Just creating the supply of candyland money was the catalyst for the demand. They should never have been so shortsighted.

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