Veil Of Politics
In the month ending on May 26th, 464,983 foreclosures of subprime and Alt-A mortgages (out of a universe of 3.2 million studied). 2010 hit 1.2 million foreclosures. So in 2009, 15% of all subprime mortgages were foreclosed in May! Only 19,041 — a paltry 6% — were modified during this period. And of those modified, only 11,200 involved any reduction in the monthly payments! Only 12% involved any write-off of interest, fees, or principal and 27% of the loan modifications actually increased the monthly payments due.
Alan M. White of the Valparaiso Law School, who conducted the study, noted that the data showed that “the Administration’s plan to stimulate mortgage modifications does not seen to have had much effect yet, at least in this market segment” [i.e. subprimes].
And the trend lines are all bad:
• The number of loan modifications dropped 11% from April to May.
• The ratio of foreclosure losses to modification write downs (the amount lost in foreclosure: the amount rescued by write-downs) doubled in the past month. For every dollar saved in modifications, $150 was lost in foreclosure.
When Obama launched his mortgage rescue plan, he promised that it would help five million households. So far, he is about 4,969,000 short of his goal!!
When will the subprime foreclosures stop? In about a year when all of these unfortunate people have lost their homes!
Why is Obama’s plan falling so far short of the mark? The fault is its own restrictions. You cannot get a loan modification if:
• You have lost your job
• You owe more than 5% above what your house is worth
• You are already in default
• You have not yet missed at least one payment
• Your lender does not want to participate
• The reworked mortgage payment would come to more than 31% of your income
• Your mortgage is over $759,000
• The home is not your primary residence
The number of beleaguered homeowners who can slip through the eye of this particular needle and qualify for a mortgage modification is tiny.
And yet there is an easy remedy at hand. Obama should simply say, as they did in Sweden, that the government will simply buy the distressed mortgages from the banks and adjust the payments to make them possible for the homeowners. Then, when the economy comes back, the homeowners could either pay back the government what they owe for the postponed payments or sell the house and repay the feds from the proceeds. If they won’t do either, the feds could then seize the house and get their money back. Cost to the taxpayers: zero. In f act, they would likely make a profit.
Why won’t Obama do this? It’s because a Democratic administration cannot throw people out of their homes. Better to let them default and make the big, bad bank do the dirty work.