Expert Urges U.S.: Let the Home Foreclosures Begin

Friday, 02 Apr 2010 08:08 AM

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Fusion IQ CEO Barry Ritholtz says the government should stop trying to stop foreclosures.

"The best thing for the nation (but not necessarily the banks) is to allow the foreclosure process to proceed unimpeded," says Ritholtz, also the director of equity research for Fusion IQ, an online quantitative analysis research firm.

“The mortgage mods (modifications) and foreclosure abatement programs are really all about propping up insolvent banking institutions on the taxpayer dollar and at the expense of the middle class,” he recently wrote at The Business Insider.

“Were the banks required to report their mortgages accurately and/or write them down, they would be revealed as insolvent,” Ritholtz says.

“These (mortgage modification) programs are another losing round of helping Wall Street at the expense of Main Street. It is the worst kind of trickle down economics.”

Ritholtz argues that the real estate market should “experience a healthy price normalization process.”

“Even though home prices have fallen dramatically, they have yet to reach their historical means relative to income or the cost of renting," he says.

The problem, Ritholtz observes, began with the ultra-low mortgage rates available from 2001 to 20004 and was abetted by an abdication of traditional lending standards that began in non-bank lending institutions and eventually moved into virtually all banks.

As a result, an enormous number of families are living in homes they can't afford, Ritholtz observes and bank balance sheets laden with current bad loans and lots of potential future defaulting loans.

The Obama administration has announced a new federal mortgage relief plan for homeowners who are out of work, under water on their mortgages, and/or behind on their payments, The Chicago Sun Times reports.

Under the new program, those who are unemployed will have their loan payments reduced to a maximum of 31 percent of their unemployment benefit for up to six months. The borrower must be living in the home, have a loan of less than $729,000, be receiving unemployment benefits, and be no more than 90 days late in their mortgage payments.

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