Housing woes can’t be modified

November 30, 2009

The White House jobs summit now has a worthy challenger for the Obama Administration Idea Least Likely to Produce Results.

That would be the effort by the Treasury Department to “name and shame” banks into permanently modifying mortgage payments for more troubled homeowners. Treasury will also apparently supplement its efforts at public humiliation by withholding cash incentives for modification until lower loan payments are made permanent.

Let’s sum up the plan: a) bash an industry whose approval ratings are already near zero; b) create a disincentive for lenders to begin any new modification since collecting from Uncle Sam will be more difficult.

Then again, Obama housing policy wasn’t really working anyway. Although the administration hopes to prevent as many as 4 million foreclosures through its Home Affordable Modification Program, fewer than 2,000 mortgages had been permanently modified through the end of August. No surprise, really, given that the program was not designed to address foreclosures caused by unemployment.

As the Congressional Oversight Panel notes in a recent report, the housing problem is now a jobs problem. And if the White House had a silver bullet for that, unemployment wouldn’t be at 10.2 percent and it wouldn’t be holding a jobs summit.

But expect the White House and Congress to continue to try and wrestle the foreclosure crisis to the mat. Doing nothing isn’t politically palatable in an election year when the economy will dominate.

Potential fixes will come fast and furious from Washington. Mandatory mediation between lenders and borrowers before foreclosure can proceed. Government temporarily paying part of an unemployed borrower’s mortgage. A rerun of efforts to change bankruptcy law so judges can reduce payments and principal.

Judicial “cram down” is a particularly bad idea since it would create new risk for lenders, the cost of which would certainly be passed on to future borrowers.

What a price to pay — in treasure, political capital and the creation of yet more business uncertainty — just to avoid the twin facts that too many people are in homes they can’t afford and that there remains a vast oversupply of housing in this country.

Those are economic realities that can’t be modified.

One comment

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When you fire a machine gun, it’s kind of pointless to try to figure out exactly which bullet killed the target. Mortgage servicing fraud has systematically taken out millions of homeowners and modifications offer no protection against further assaults. Modification agreements frequently include ‘safe harbor’ clauses precluding homeowners from exercising their legal rights in actionable causes against servicers for crimes already committed. James, you are so right. Housing woes can not be modified away. Equally ineffective is Treasury’s plan to send financial “SWAT” teams to leading mortgage servicers to mortgage servicers to police their performance in the $75 billion HAMP program that seeks modifications of distressed mortgages while bogus defaults and foreclosures remain far more profitable for all parties.The sacking and pillaging of Main Street America will not stop until perpetrators and accomplices are fully prosecuted. The DOJ, assuming we still have a viable justice system must work its way up this egregious food chain. They need to rout out criminal enterprises that keep feeding rigged CDS venues from subsidiary servicers to parent investment banks that profited immensely in proprietary trades betting on fabricated defaults they knew their servicers were manufacturing. Anything short of this just gives them an opportunity to reload.

Posted by Michel Delving | Report as abusive