Obama’s loan remod program making the mortgage fiasco worse, not better.
A couple of weeks ago I posted this to an article at the WSJ entitled “Debtors Dilemma: Pay the Mortgage or Walk Away“:
Kinda makes mortgage loan remodifications look like a bunch of bull, right?
That being said, I live in Goodyear, AZ and know first hand how tough the real estate market is out here. Because AZ overleveraged in real estate there are homes in this market that are going for as low as $60,000 that during the boom times was going for $240,000.
I was one of those people who had to walk away from the home, not because I made a bad investment because I don’t follow the philosophy that your home is your investment but because I couldn’t afford the mortgage payment. My wife and I put down $70,000, more than 20% of the value of the home, got a fixed interest rate of about 5%. Even after all that, we still couldn’t afford the home. We didn’t want to participate in any of the government’s stupid loan remod programs because 1) our problems are our own and not society’s and 2) there’s a loan remod program that already exists: foreclosures and go rent. We saved on average $700 a month not paying our mortgage and gave the keys back to the lender. Mind you, we did try to work with the lender to remodify the mortgage, but the lender is also at risk because they have to eat whatever is remodified. Also, it wouldn’t have been in our best interest to do it because at the time tax law was that loan remods did not qualify for debt relief (now it does. However, if you are foreclosed on or forced into a short sale those still do not qualify. How’s that for insanity in our tax law?). We had to file bankruptcy eventually because that was the only way to protect ourselves from the discharge of indebtedness due to foreclosure.
You want to know something? Even after all of this, we are still having trouble meeting our rent and paying our other bills. I only use myself as anecdotal evidence, but I am willing to bet that a great many people are in my same situation that even if they participated in any foolish government loan remod program they would still have trouble paying their mortgage because they have other debts that must be paid. In fact, statistics from the government as well as banking associations prove this point. This is the inanity of government programs: they look at one issue (people being foreclosed on) and create a “solution” they think solves the problem (loan remods forced on banks), but in reality the program helps no one because the people they are intending to help actually have other reasons why they can’t pay the mortgage (too much unsecured debt).
I don’t have sympathy for people like Mr. Figg. He wants to blame market “manipulation” for the real estate HOWEVER no one told him to sign on the dotted line. That is the problem with our current state of society: no one wants to take responsibility for their actions. I bet at the time Mr. Figg was thinking that he would live in the house for about five years and then flip it because of market appreciation. He was caught up in the euphoria just like the banks that gave him the mortgage was. No one made my wife and I sign on the dotted line, but we don’t blame the evil “banks” for giving us the loan to buy the home. It just goes to show that our current culture has been moved from one of responsibility to one of entitlement. I will agree with another poster: this problem started with the Congress and its decisions to make people feel they are “entitled” to things in this country. Everything is not to be given to you not because you earned it, but because you are entitled to it. This will not change until Congress owns up to the fact that it IS the problem, NOT the solution to the problem.
The reason I post this over here is because an article in the New York Times basically confirms what I said above:
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
In essence, the Obama program is a failure, but since the government does not believe itself to be the problem it will not unhook itself. Indeed, in another case of seeing how educated people can’t see what is right in front of their faces, Mark Zandi of Economy.com states that the government should not stop the program, but instead give banks
hush money reimbursements for any losses they have to incur from the loan remod:
Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.
“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”
This is foolishness beyond the pail. It starts with the assumption that everyone is entitled to a home and that the government should ensure that people stay in their homes by continuing to manipulate the market. The reason we had this recession is because the government manipulated the mortgage market (not to mention the debt market with a loose monetary policy). We don’t need more market manipulation by the government: we need an explicit admission by the government to stay out of the market and tell people they are not entitled to their homes until they pay off their mortgage. Don’t hold your breath for that: with the government extending the bailout of Fannie and Freddie we should expect that the government will keep its grubby little hands in the mortgage market for a very long time.