Editor's Note, July 25, 2012: This and other BankThink opinion columns written by Joel Sucher bearing this note, published between October 2011 and June 2012, mentioned the law firm of Stephen J. Baum, Litton Loan Servicing, or both. The columns should have disclosed that Baum's firm, working on behalf of Litton, had attempted to foreclose on the writer's property in 2009. American Banker's editors were unaware of this history at the time the columns were published.

There's more confusion in the Obama administration's policy response to the foreclosure crisis than an Abbott and Costello routine. Who's going to help the strapped homeowner? Treasury? Yes. Wait, what about FHFA? Maybe. What about the CFPB?

Now, the Federal Reserve steps up to the plate, this time with a report issued on Jan. 4 entitled "The U.S. Housing Market: Current Conditions and Policy Considerations." A very somber, serious title for  a well-thought out "white paper," full of the obvious ("The ongoing problems in the U.S. housing market continue to impede the economic recovery") and sets of very reasonable-sounding suggestions for ways to remediate the problem (such as converting foreclosed homes to rentals). Chairman Ben Bernanke's cover letter reiterates what most of us already know, or should know: that "restoring the health of the housing market is a necessary part of a broader strategy for economic recovery."

Anyway, so I'm trying to get through 26 pages of pure density, illustrated with the usual graphs and charts, but I'm getting no sense of how, in a real world context, any of these suggestions would be implemented. Simplification is the first casualty of bureaucratic thinking and tinkering, and this report holds fast to that premise. Yes, REOs-to-rentals is a great idea on paper, assuming all those liability issues that accompany rentals can be addressed, not to mention the financing minefields for any potential investors. And what about Fannie Mae and Freddie Mac, both of which hold large numbers of REOs that they would rather sell than rent?

Not much is said about the homeowner, except in the footnotes: Page 2 – "This paper does not address the important issues surrounding whether lenders and servicers have appropriately carried out their roles in foreclosures." And, in support of the premise that many of the foreclosed will desire moves to single-family rentals, there's the footnote on Page 9, citing Raven Molloy and Hui Shan's Fed paper, "The Post Foreclosure Experience of US Households." As I wrote in an Oct. 20 blog post for BankThink, Molloy and Shan put an implausibly happy face on people they called "post-foreclosure migrants." I'm not sure that with all the cutbacks in federal housing subsidies to the states that most of these "migrants" could even afford an REO-to-rental. For many of the foreclosed it's been an REO to the car, or to the homeless shelter. 

My impression of the Fed report can be summed up in bullet points

  • The housing situation is very, very bad
  • We might think of doing REO to rentals
  • Let's continue to pursue loan modifications and alternatives to foreclosure
  • But there are challenges to much of this thinking
  • So, let's do some more studying

The report concludes, with all bureaucratic finesse: "As this paper suggests, however, there is unfortunately no single solution for the problems the housing market faces.  Instead, progress will come only through persistent and careful efforts to address a range of difficult and interdependent issues."
So, let's kick this can down the road (or, at least until after the election). Politicians have related to the foreclosure issue much as Superman reacts to kryptonite. Well, not all of them … Mitt Romney did say, in a recent Nevada speech, he would like to see foreclosures proceed with all alacrity.

Well, to my way of thinking, if you really want to keep people in their homes, then, as the Nike slogan says, "Just do it."

How? I recently interviewed Chris Wyatt for a documentary I'm producing, "Foreclosure Diaries." Wyatt, a mortgage consultant, spent nine years at Litton Loan Servicing, much of the time dealing directly with homeowners seeking modifications. He knows the problems inherent in trying to make nonperforming loans perform once again, and how current modification programs simply ask too much from homeowners who are already deluged in debt, stressed out, unemployed, or otherwise victimized by the financial crisis. According to Wyatt, the loan modification process could be vastly simplified by:

  • Requiring homeowners to provide only two recent paycheck stubs or other income documents, such as proof of Social Security income
  • Limiting the modified monthly mortgage payment to a housing-debt-to-income ratio of 28%
  • Providing principal reductions reflecting the current value of the property
  • Eliminating trial periods prior to final modification
  • Streamlining timeframes for review and final approval of any loan modification to 60 days from receipt of the homeowner's income documents.

Probably too simple a formula for the banks, GSEs and politicians, but it would be a breath of fresh air for underwater homeowners.
Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y. is working on "Foreclosure Diaries," a documentary about the financial crisis.