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11/28/2007
10:45 AM
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Lenders Plan Database To Help With Foreclosure Mess, But Will Things Really Change?

Mortgage lenders on Tuesday committed to a doozy of an IT project: they'll build a database on every foreclosed property in the United States to help cities untangle the foreclosure mess. Good. The guilty party is finally starting to show some responsibility for the subprime mortgage crisis.

Mortgage lenders on Tuesday committed to a doozy of an IT project: they'll build a database on every foreclosed property in the United States to help cities untangle the foreclosure mess. Good. The guilty party is finally starting to show some responsibility for the subprime mortgage crisis.The Mortgage Brokers Association told the U.S. Conference of Mayors in a meeting in Detroit that the database, accessible from its Web site, will include information on the lenders and loan servicers for each home. Sadly, this is a particular need in places like Detroit, which gets inundated with calls from residents asking who is responsible for foreclosed homes with overgrown lawns and broken windows, according to an article in today's Detroit Free Press. The database will help cities figure out who seized the home, whether it's a bank or a government entity for owed taxes.

The Mortgage Brokers Association also said it will donate $100 for every one of an estimated one million foreclosed properties to create a telephone counseling service for consumers trying to avoid foreclosure. "What we have is an unbelievable number of people in bad [mortgage] products," John Taylor, CEO of the National Community Reinvestment Coalition, told the Free Press.

I'm glad lenders are finally digging into their own pockets to help with the subprime mess. But will things really change? I'm not so sure.

Case in point: I just logged onto a lender's Web site that's advertising "SmartChoice" interest-only mortgage loans in the Detroit area, where you can avoid paying any of the principal you owe on a home for up to 10 years. This is an area of the country where homes have been dropping in value and are staying on the market for months, even years. An interest-only loan might make sense for a troubled homeowner who has little choice but to restructure loans for smaller payments, but they're a considerable risk, as the rising foreclosure rate proves, for consumers who've bought houses with them on the assumption home values would continue to rise. The lender should rebrand these loans "Not-A-Smart-Choice-But-If-You're-Desperate-You-Can-Have-This-At-Your-Own-Risk" Loan. Risky loans should carry a clearly visible warning on them, not unlike the surgeon general's warning on cigarettes. And banks should rethink whether many of these high-risk loans make any sense at all.

It's true our country's wealth and success is built on each citizen taking responsibility for his or her financial health. It shouldn't be easy or painless to get out of a bad loan. But lenders ARE an active participant in the subprime mess and need to be more responsible for educating consumers on all available loans, even the ones that don't make them as much money. Should personal financial crisis hit, lenders should actively help consumers avoid foreclosure at all costs.

Many years ago, when we were planning to buy our first house but had no idea what we were doing, I left my husband at home with our colicky infant son and drove down to a quiet parking lot by the beach, cracked open a how-to book on buying a home, and read it front to back. I left the beach parking lot that day with an understanding of mortgage terms, how different loans could be structured, and the risks with each approach. But how many Americans take the time -- or have the time -- to really understand the mortgage market? They see an advertisement on a Web site of smiling faces who've presumably just closed on a "SmartChoice" loan that got them in a house for a mere $900 a month.

In the pursuit of the American Dream, people will believe anything, including the idea that a bank is like the kind, rich uncle that wouldn't do loans that didn't make sense for all involved. What a fallacy that's proved to be.

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