No HOPE NOW For Mortgages

This post first appeared on Minyanville.

Washington’s war on foreclosures isn’t going very well.

Or is it? It depends on who you ask.

In the past few days, contradictory reports have emerged over the status of efforts to stem the rising tide of foreclosures.

HOPE NOW, the foreclosure prevention program started by Congress last July, reports that it’s successfully preventing thousands of repossessions a day - 170,000 in May alone, and almost 2 million overall. The group includes such mortgage behemoths as Wells Fargo (WFC), JP Morgan Chase (JPM) and Countrywide (CFC).

Consumer groups, on the other hand, aren’t so sure. The California Reinvestment Coalition (CRC), which advocates for low-income communities, says that servicers are failing to keep troubled borrowers in their homes, and that HOPE NOW's methodology in counting "prevented" foreclosures is deeply flawed.

The CRC also alleges that the loan servicing industry hasn't adequately met the demands of millions of homeowners who were victims of predatory lending during the boom.

On Housing Wire, Paul Jackson aptly points out that public perception about homeownership and lending practices is changing, despite the public-relations war being waged by both sides. During the boom, community development groups chided banks for shutting out low-income borrowers. Even President Bush got involved, pushing the Federal Housing Administration to offer “no down payment” loan options.

But public perception can send organizations headlong from one side of an issue to the other: Consumer advocacy organizations have now turned against lenders, in some cases incriminating them for following the very advice they themselves hawked just a few years ago.

Politicians, as they’re wont to do, are responding with cries for vast reams of legislation to protect borrowers. Consumer groups are now pitted against the formidable housing lobby, which has been very generous with its donations this election year.

Minyanville’s Professor Depew often writes about the concept of “social mood,” and how consumer preferences lead trends, rather than visa versa: "As social mood continues to darken and turn against symbols of excessive wealth and consumption, the former icons of bull market glee and prosperity begin to tarnish in the public eye."

If there’s one sure bet in housing, it's that writing a new mortgage will be a lot trickier in five years than it is today. Disclosure will increase, conflicts of interest will be regulated away and bureaucracies needed to police the new regime will be created out of whole cloth.

Regulators may succeed in preventing another bubble, but the cost of legislation that unduly constricts mortgage lending will be borne for years to come.