Foreclosure experts meet, debate strategies
JEFFERSON CITY — Foreclosures are running at an all-time high. And few think that will change any time soon.
So what do you do about them?
That was the subject of a conference here Thursday, where dozens of foreclosure counselors and experts from across the state gathered to talk about ways to try to stanch the flow of mortgage trouble that is swamping St. Louis and the nation’s economy.
They met the day after new figures were released by real estate data firm RealtyTrac, showing foreclosure activity in 2009 in the St. Louis region basically matched record highs set the year before. Nationwide, it grew 21 percent on the year, as joblessness and falling home prices replaced subprime lending as a leading cause of mortgage trouble.
But joblessness and a weak housing market don’t appear to be going away any time soon, said William Emmons, an economist at the Federal Reserve Bank of St. Louis. And so, he said, neither will foreclosures.
"I think it’s really not an exaggeration to say this is something like a 100-year flood that’s hit us," Emmons said. "And unlike the ‘93 flood, this is not going to recede in a few weeks or even months. This is going to last years."
There is growing debate on what should be done about it.
In recent months, some economists have begun to argue that massive government efforts to prevent foreclosures are only dragging the crisis out and slowing economic recovery. Most of those efforts hinge on getting banks to reduce monthly payments for borrowers. But too many borrowers, some experts say, simply cannot afford their homes. The only way to fix the mortgages would be to write down their principle, something banks have been unwilling to do on any mass scale.
Through mid-December, some 759,000 borrowers nationwide — about 9,000 in Missouri and 37,500 in Illinois — had mortgages modified through the government’s $75 billion Making Home Affordable Program, which gives banks an incentive to lower monthly payments. But only 31,000 of those people — about 4 percent — have received permanent modifications; most of the rest received several months of interest rate reductions small personal loans. That raises worries about what will happen when these trial runs end.
"This program is not working the way we had hoped it would work," said Todd Swanstrom, a professor at the University of Missouri-St. Louis.
And 13,000 permanent modifications is just a drop in the bucket, said Diane Standaert, legislative counsel for the Center for Responsible Lending.
About 6 million in loans have gone into foreclosure since 2007, she said, and projections range from 8 million to 13 million before this wave is through. One in 10 borrowers is behind on their mortgages, and there’s no quick fix in sight. Meanwhile, complex, case-by-case counseling programs have had a hard time keeping up.
"So far, foreclosure prevention efforts have been woefully unable to keep pace," she said.
Still, when they happen, they have helped.
Swanstrom pointed to a recent study by the Urban Institute, which found that troubled borrowers who sought help from free, government-certified counselors were 60 percent more likely to avoid foreclosure than those who did not. And they were able to cut monthly payments by an average of $454 million.
That kind of front-line counseling needs to be strengthened, Standaert said, but it’s just one part of what she called a "multipronged strategy" to tackle the root causes of the mortgage crisis.
Federal and state governments also should take a harder line against risky lending, she said, and strengthen consumer protections and loan underwriting requirements.
"The stakes are high," Standaert said. "We need to translate the lessons of this crisis into sensible rules to make sure this doesn’t happen again."
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