Protesters Fight Foreclosure

Protesters from Connecticut, New York and New Jersey stormed the parking lot of Carrington Capital Management chanting:

"Carrington fix our loans, save our homes, stop the foreclosures now."

The protesters were members of housing activist group ACORN; the Association of Community Organizations for Reform Now.  Meanwhile, Carrington Capital Management is the new owner of more than 100,000 mortgages bought from  the loan servicing business of New Century Financial Corporation for $188 Million last May. Carrington is a company founded in 2004 with a $25 Million seed money from New Century; the country’s second largest subprime mortgage lender before it went bankrupt.

A protest also took place at Carrington’s office in California.  It was held around the same week that federal agencies appealed that federally regulated financial institutions servicing the residential mortgages sector to work with at-risk borrowers. Some of the recommended strategies to keep these borrowers from losing their homes were loan modifications, conversion of adjustable rates to fixed rates or deferral of payments.

Meanwhile, ACORN is campaigning that Carrington:

1. Place foreclosures on hold for 90 days, to enable homeowners to work with non-profit housing counseling agencies
2. To restructure loans for people in default based on their income and ability to repay
3. To contact borrowers that have adjustable rates 120 days before the rate resets.  If they can’t afford the new rates, ACORN wants Carrington to lock in the initial interest rate for the remainder of the loan.

I agree that financial institutions should work with their at risk borrowers, since they are also losing money from these foreclosures.  However, as a business they need to remain profitable while helping their at-risk borrowers.

Loan modification, conversion of adjustable rate to fixed rates or deferral of payments are strategies that makes it a win-win situation for both the borrower and the financial institution.  It’s not the most ideal for both parties, but it is a compromise that could make things workable.

From my point of view, I believe that the first demand of ACORN is something that the concerned financial institutions should consider.  Maybe with a provision that unpaid interest for that period will be added to the total loan.  Meanwhile, the second and third demand is something that should be addressed to potential borrowers before they enter a mortgage agreement. It will be good if these will be offered to at-risk borrowers, but it could encourage more people to enter risky loans if they have an easy way out.

People go into foreclosure for various reasons. However, the financial institutions are only partly to blame. The borrowers have the responsibility as well to make sure they know what they are getting into. Moreover, they should assess if they can really afford to pay their loans based on their circumstances, lifestyle and not on income alone.  Overstretching one’s budget to afford a home can only make things worse. 

In the end, I believe that the future of housing and mortgage markets will be brighter.  Although, it will take awhile to recover, today’s crisis gave valuable lessons to both financial institutions and borrowers.  It is like an unavoidable or forced regulation that could make things more stable for both parties.