Government and lenders see foreclosure prevention efforts failing. Now for plan B. Or are we on plan H now?

WaPo reports that many banks (and even Fannie and Freddie) are learning that foreclosure prevention efforts aren’t reaching as many people as hoped, and are developing foreclosure alternatives.

Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don’t qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank estimates that up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.

1.9 million foreclosures are predicted this year. These alternatives are being touted as a way to make the process more orderly and to avoid a glut of foreclosures down the road.

Do you buy it?

Every one of these foreclosure fixes seems to either 1) have unintended consequences or 2) fail to reach as many people as expected.

In the same vein, Rutgers University economics professor Eugene White opines in yesterday’s Wall Street Journal (subscription required) that these foreclosure rescue efforts actually harm many of the people they are supposed to help. Find out why he thinks that the poor are better off renting.

2 Responses

  1. The road to housing recovery is going to take a very long time, if the banks don’t get on the ball. Joe Banker needs to stop sitting around letting short-sale deals slide and foreclosures pile up.

    A huge number of homeowners have lost 30% or more in the value of their homes. Logic says, many will walk away, loading up on top of an already large surplus in foreclosed property. It would certainly help the situation if lazy or out of step banks would speed the process of the short-sale market. With many short-sale deals held in limbo for months, sales are being lost. It makes no sense to hold onto losing assets, while there is a willing buyer.

    I’ve also heard, it’s becoming a better bet for many from all social groups to rent in this market. Makes sense in specific areas of the country over others.

    No easy fix. We could use more Harvard and Oxford grads with the merits to use strong logic to take charge of the Fed Reserve and large banks to figure this mess out.

  2. It all depends on the area you live in could be worse for Short Sales and Foreclosures. In Richmond, VA we have been a little lucky over the last year or so and not have a flood of short sales and foreclosures, however we are seeing decrease home values on the sales side and on the assessed side.
    Short Sales are here to stay and more coming. But folks should realize that if they walk away from their home it will still be a large mark on their credit report.

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