….Elkhart also symbolizes the failure of federal efforts to turn around the housing slump at the heart of the economic crisis. Housing in this community has become almost entirely dependent on a string of federal support programs, which are nonetheless failing to prevent a fall in prices and a rise in mortgage delinquencies.
More than one in 10 mortgage holders in Elkhart is seriously behind on payments. The median sales price has plunged to the level of a decade ago. Many homeowners owe more than their home is worth, freezing them in place for years. Foreclosures recently hit a record.
To the extent that the real estate market is functioning at all, people here say, it is doing so only because of the emergency programs, which have pushed down interest rates on mortgages and offered buyers a substantial tax credit.
Equally important is an expanded mortgage insurance program run by the Federal Housing Administration, which encourages private lenders to accept borrowers with small down payments. The government takes the risk of default.
A few years ago, only one in 10 buyers in Elkhart used the housing agency program. Now about half do. Across the country, the agency has greatly expanded its reach so that it now insures six million mortgages.
Gee, what would happen to the default rate if banks reworked the mortgages and reduced the interest rate to…the official inflation rate. They would still have gotten a profit from the points and fees and interest already paid and they would have a higher percentage of folks not defaulting on their mortgages. I read somewhere that each forclosure costs the bank about $75K. Isn’t it better for banks to pocket the modest profit already received and recoup the principle over time, than to remain stubbornly fixed to terms negotiated during a housing bubble (that they should have recognized and not ventured the money to support) and which are likely to lead to a forclosures that will destroy whatever profit had been made and give the bank a significant loss?
As the saying goes, a bird in hand is worth two in the bush.