The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters.
"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.
According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.
Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.
Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.
Since the cost of renting is still significantly less than the cost of owning, people who get "help" are still likely to be paying more for their mortgage than they would pay to rent an equivalent home. Furthermore, since housing prices are still falling, and are likely to for several more years, people who get "help" will likely find their negative equity is continuing to grow.
That said, the emotional cost of foreclosure may be worse than the financial cost of remaining homeowners.