Yesterday, the Senate Banking Committee held a hearing to address the ongoing foreclosure problem. Both sides of the aisle tore into representatives from banks, servicers and the Obama administration. Leading the charge, Chairman Dodd (D-CT) asked:

So I'm hoping that, with stakes this high, somebody can explain to me why nothing has changed over the last two years.



Let me give it a shot.

First, I would point the Senator to yesterday's post about servicers and re-defaults. There, he'll find two reasons:

1. Servicers have an incredible amount of volume to deal with, as many distressed homeowners want modifications. They either haven't had time to ramp up their staffs to process all applications, or don't want to.

2. Many of those who have gotten modifications will re-default, because no reasonable new mortgage terms will actually result in their being able to cope with the principal balance of the mortgage.

Then, there are a few other reasons:

3. Many don't (or shouldn't) qualify for modifications, for the same reason as #2. They're better off foreclosing, as they just can't afford their mortgage under any terms a bank would accept.

4. Unemployment is very high, so many Americans are foreclosing for the more traditional reason -- because they have no job, so can't pay their mortgage. Unemployment (and consequently foreclosures) is especially high in some of the states who were hurt worst by the housing bubble's pop.

The Senators should also note that there would be many more foreclosures without mortgage modifications. If you think the current picture is bad, just imagine what might have been.

Of course, with re-default rates appearing to trend around 30% to 45%, and unemployment still increasing, things are sure to continue to look pretty ugly for some time. So I suspect we'll have another hearing like this in a few months, with still incredulous Senators wondering why we still have so many foreclosures. The reasons will be largely the same.

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