Housing woes can’t be modified
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.