Tuesday, December 09, 2008

Mortgage modifications failing

CNBC's Diana Olick says loan modification programs are failing:
According to the Comptroller of the Currency, John Dugan, who gave a preview of his latest Mortgage Metrics report:

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent.” ...

I realize that there are a lot of public and private sector programs really trying to help troubled borrowers, but the fact of the matter is that a lot of troubled borrowers are beyond help. And instead of spending so much time focusing on trying to modify these loans, perhaps we need to look at the problem from a different perspective. ...

Unless the lenders or investors or government officials are willing to simply throw the loan out and give away an awful lot of house to an awful lot of borrowers, modifications, and certainly "mass modifications" which a lot of government types are pushing, are just exacerbating the problem.
Diana Olick promotes a fantastic alternative at the end of this video: Let the properties go into foreclosure, sell them to people who can afford them (i.e. renters like us), and let the free market work. What a novel idea! There's no way politicians will go for it.

The whole "prevent irresponsible homeowners from losing their homes" effort is by definition a "prevent responsible renters from buying homes" effort.


  1. we are seeing people in our doing mortgage modifications and then getting right back into the same situations

  2. A few months have past since this blog was published.

    I would like to agree with you, but I can not because most people in this economy have lost their job security and lost their financial security and investments. Many people in the mortgage mess were out-right lied to by lenders.

    Because housing prices practically tripled a few years ago, a normal home purchase required a mortgage and it is not paid for in full. A mortgage is based on a person's credit history, liquid cash, salary and employment history. Now all of these are at risk for the average American. A house was also considered a long term investment by many people. Even renters could have their financial "rug" pulled out from their feet.

    If we were in the year 2000, then I think I could agree with you, but our picture is completely different now.