The futility of mortgage rescue programs

Has anyone read the article in the City Journal on Obsessive Housing Disorder? I can't post the link, but it's easy enough to find. It's by Steven Malanga. It states that past government support of homeownership has been misguided and has helped to fuel this and past economic downturns. And that long term and stable economic prosperity is best not accomplished by propping up the housing market. It's interesting reading.

these "programs" are merely for building political capital (i.e. votes). They have been futile from day one. The bottom line is one can't turn a trillion dollars of bad loans into good ones, no matter what you do. The govt. has thrown away so much money on this pathetic effort, it's really an embarrassment. Home values will revert to the mean, which is much, much lower than where they are now.

Yes, pull the plug, foreclose on them all. NONE of them should be able to keep their homes. You sign the dotted line, pay or get foreclosed on. My family is locked out because my wife and I were born at the wrong time. We hit our 20's during the boom. By the time we had steady employment, a "fixxer-upper" 800 square foot home was selling for $350k. Rediculous. We were smart enough to sit on the sidelines and wait it out. We played by the rules, it should be those who did who are punished, not us (again).

News flash: There is no easy way out of this mess. It's time for people to wake up and accept reality.

Property prices will continue to fall to levels supported by fundamentals. Homeowners who bit off more than they can chew will be wiped out along with the investors who hold their mortgage debt. Sorry, but there is nothing our politicians in government (who like to talk a big game) can do to stop this. This is a classic deleveraging scenario-- the natural and inevitable fallout from a speculative asset bubble that has burst. Similar situations can be found throughout history. The ending is always the same. (See: Dutch Tulip Craze, South Seas Bubble, Real Estate Crash of the Late 1980's, the Stock Market Crash of 1929, etc.)

If a lender could get $0.75 on the dollar through foreclosure or $0.70 on the dollar by modifying the current loan, which would they choose?

The other reasons lenders are reluctant to make loan modifications (or foreclosure) is lenders can still show that they carry the full value of the mortgage on their balance sheet. Once they start showing that a $400K mortgage will now only net them $300K in payments, they take a hit. Many financial institutions are essentially insolvent. It only takes a little bit of creative accounting to make it appear that they are in better financial shape then they are. Remeber the changes to FASB a few months back?

spot on John...

"Instead of giving money to the banks to do these deals, government officials would be better off simply giving money directly to struggling homeowners to help them with their payments, the Fed study finds."

That's what they should have been doing all along! But in this country, if you want to help people who are struggling, rich people and corporations will make sure you help them first.

Why people are only thinking about rescuing struggling home owners? Are they really victims? Or are they actually helped to create this crisis?

The real victim are potential home buyers who got priced out. They saved for years and only found their hard earned moneys were stolen to elevate housing price against their will.

I laugh at these politicians who stand up in the spotlight spouting how much they are doing in the effort to stop the housing skid and foreclosure crisis. You know what though, it worked for them! Great PR. The reality is they should have allowed the proposed legislation to allow modification of mortgage loans in consumer bankruptcy to pass. This would have put a floor under this south headed disaster. An acknowledgment by the borrower that they screwed up and have to throw themselves on the mercy of the Court, and an imposition of a fair and equitable modification of bogus mortgage terms on the speculative lenders and investors. Course, too much uninhibited bailout money was available allowing the banking industry to lobby against this. Honesty folks, BAILOUT money (ie. taxpayer funds) defeated this bill..........oh yea, im confident....................

Does anyone consider people who are losing their homes because of recent job loss? Some of these people may have overextended themselves, but many more people are struggling to hold on to places they have had for years. I don't hear much support for them.

Hi Marylin, it's called "risk"...I am sorry, but there are no guarantees in life...I shouldn't have to pay for someone's poor judgment, misfortune or outright irresponsible behavior, yet that is exactly what we are being asked to do. It is rare that someone who has properly saved, made sacrifices to ensure that they had sufficient reserves to weather a job loss or illness loses their home.

If a individual or family can't put enough money aside to have six months bills etc available, they shouldn't own a home until they can... I am sorry, but let's start being responsible again America...Now THAT will be "Change You Can Believe IN!", not the pandering nanny state we are fast becoming under our current leadership....

It seems most of the comments think that everyone who needs help made poor decisions or got into more loan than they could afford. That is simply not true. Millions of people are unemployed and for periods longer than a year. How many people do you think have 2-3 year reserves? I have a relative who lost their job 2 years ago and was not able to find a new one. During this time, they used savings and part-time jobs to make payments. They recently found a job and the income is half of what they made before. Although they once had a mortgage that was conservative and affordable, they now have one they can't afford. They pursued the loan modification and were told they did not qualify because they had too many assets; basically, enough in savings to supplement the mortgage for savings another 3 months. I guess it is better to foreclose than to modify. I thought these programs would help people who could support a mortgage. Instead, the people being help are the ones who can’t afford a mortgage and will lose it eventually. As for this relative, they will have to work 2 jobs until the housing markets turns around and they can sell this house.