Monday, June 21, 2010
Much as we on the right like to argue that the mainstream media is in the tank for Barack Obama, some journalists are beginning to lift the curtain:
The Obama administration's flagship effort to help people in danger of losing their homes is falling flat.
More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That's more than the 27 percent who have managed to have their loan payments reduced to help them keep their homes.
Turns out that the homeowners let in to the program without proving up their income -- the Obama administration pressured banks to forgo due diligence in the interest of time -- in fact do not earn enough even to make the payments on the modified mortgages. They are dropping out as they miss their payments, and will soon go in to default, which is not good if you are long houses or home mortgages.
The basic problem that caused all this was lending people more than they could afford to repay. And this is still going on?
If Obama really wants these folk to keep their houses, he will need a system that finds out how much they can really repay, and go for that. It might mean that some will take 500 years to pay off the debt.
Inflation will help. The homeowners' incomes could be checked every five years, and payments adjusted accordingly.
I'd add that the lack of meaningful down payments is what screwed up the mortgage industry.
Circa 2006, the average down payment was only 3% ... for all US mortgages, not just subprime! ... I heard somewhere. This violates hundred years of prudent banking experience, and led to no end of abuses.
Barney Frank still doesn't understand this. Fannie and Freddie will continue to be financial sinkholes until we relearn this.
"It might mean that some will take 500 years to pay off the debt."
In other words, never.
"Inflation will help."
It will help conniving politicians and those who foolishly lived beyond their means. It will screw hard-working, financially responsible people.
If the media identifies the cause of the financial crisis not as greedy bankers but politicians (mostly but not all Democrat) greedy for votes who encouraged Fannie and Freddie to make bad loans *then* I will be impressed by their objectivity. Some non-MSM media outlets saw this coming as long as ten years ago:
I just came from searching for a good site on Bing and came to this site. I have to say these templates are great. Thank you for mentioning them in your article. I will be sure to add this to my favorites.
While we're on the topic of mortgages, a repost from below:
"Fannie and Freddie are the 800 pound gorillas in the corner of the room that we continue to ignore. Fannie and Freddie exceeded their initial mandate many years ago, and no one stopped them. They were never supposed to each have a trillion dollar balance sheet -- they exploited a loophole to do this. As they grew, they were vehicles for the stealth de facto nationalization of most of our mortgage industry. This also led to an unholy alliance between DC and Wall Street.
Ironically, Fannie wasn't created in the 1930s to promote home ownership but was instead intended to create liquidity for small banks so they could make small business loans. The idea was for banks to raise cash by selling to a US agency the most fungible assets that these banks had -- already exisinting plain vanilla residential mortgages. The "mom and apple pie" home ownership angle was a later construct. Talk about mission creep.
LBJ sold Fannie to the public in 1968 to help pay for the Vietnam war. Back in the 1960s LBJ couldn't just print money the same way that Obama can. Freddie was created in 1970 to give Fannie competitive company.
As they started to mushroom in size, Fannie and Freddie were a contributing factor to the S&L failures of the late 1980s. Combined with bad practices in securitization and derivatives thereto, they're a big cause of why we're in the mess we are today."
It's worth noting that the real estate market is weakening again. Even if we escape a double dip in wages (which is arguable still), we're definitely going to see a double dip in the housing market. Thanks to a different Obama bailout, it's now a certainty.
Any program homeowners acting with thoughts of hanging on to their houses and hoping for some increase in value are going to be hugely discouraged when they see the market plunge again. That's not going to help the mortgage modification effort.
Fannie and Freddie may be part of the problem, but things are just as bad here in Britain where there are no such monsters. The banks were happily lending to people who could not repay, and making no checks on income.
The key feature of a boom is that large numbers of people borrow to invest, hoping that the investment will grow faster than the interest.
The key feature of a bust is that the investments (mostly property this time) fail.
I just saw that the housing credit went to 1,300 prison inmates--including 241 with life sentences. This spurred an idea: maybe we could give every convict the tax credit and release them on their own recognizance to house arrest. They all buy houses and then stay home. They'll have nothing to do but home improvement, repair and redocorating. The extra demand for two million homes would buoy the market and kick off a new GDP growth spurt.