Wednesday, December 17, 2008

Mortgage Modifications: HUD Head Calls "Hope for Homeowners" a Failure

From WaPo:

Secretary of Housing and Urban Development Steve Preston said the centerpiece of the federal government's effort to help struggling homeowners has been a failure and he's blaming Congress.

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for
lenders and borrowers alike.

Many people are opposed to mortgage modifications, on the basis of "greed got them where they are," "why should I pay for others' stupidity," and so forth. The facts are, however, that there will be even more defaults and foreclosures occurring in 2009. Many mortgages cannot qualify for modifications because original applications relied on "stated income" and no documentation.

So if even a small percentage of these ailing mortgages can be modified, it will at least save certain individuals heartache/loss of personal fortune...and it may preserve home values in your very own neighborhood to some degree. Yes, many buyers behaved stupidly/greedily/unknowingly in the past few years...but we are where we are.
There will still be carnage even with the small amount of help that comes from mortgage mods. Time to deal.

WaPo article here.
Previous posts on mortgage modifications here and here and here.


Anonymous said...

Supply and demand?
Should the government be modifing gas prices? Gas was $4 a gallon, demand fell, gas is now selling at $1.5 gallon.
A house is only worth what someone is willing to pay for it.
No more government mettling

Montpellier said...

This was predictable and predicted - I thought they'd come up with a few more saves than this, but never anywhere near the numbers needed to significantly affect the price pressures. The only way the government can possible support housing prices is by dramatically devaluing the dollar - massive inflation. More importantly, you have to allow for a classic wage/price inflationary spiral. That's the only way to clear overly high nominal asset values.

Montpellier said... that got truncated...

I went on to wax poetic on Moral Hazard:

The trouble with massive inflation is it punishes the prudent - people who didn't gamble on the continued increase in the bubble, but this isn't entirely true either. There are some inflation hedges - equities among them - which will keep your mattress-cache of cash safe...well, not safe, but you have a chance to minimize your losses.

If and when wage inflation strikes, the prudent will find theirs increase along with the imprudent. They will still be able to buy a house at some point in the future at a sane wage/price ratio.

The only folks who get really punished are the RMBS holders, since the returns on their investments are no longer worth as much - but that's not really true either - they are better off getting paid off in devalued dollars than not getting paid off, or paid off at pennies on the dollar as they are now.

This is more broadly true for the US government - we have a massive debt overhang - the war, and tax cuts, and now the needed stimulus. The real bagholders are the Chinese and other buyers of US debt. Eventually, borrowing costs will rise - dramatically - precisely as these folks stop taking on US Gov't. debt. - and that will, Volcker-like, curb inflation. But that won't happen until the system is running in forward gear again.

Price inflation alone won't do it - money supply alone won't do it...that's why the current moves aren't working - there is no wage inflation - so there's no way to get credit into the hands of spenders unless we return to radically undervaluing risk - and more free money won't make that happen.

Unless and until we get some wage inflation, these measures are dead letters.

Real C'ville - The Bubble Blog said...

At this moment, the cost of living is less than it has been in years, due to retail prices of goods dropping, and the price of oil/gas dropping, both to levels not seen in years. And the price cuts, at least for goods, will continue.

This may cause some people to--falsely--believe that they have more money and then, combined w/current low mortgage rates, believe now is a good time to buy.

But that's bad math, and probably requires a buyer to work out more financial scenarios than one might otherwise.

And it's not wage inflation....

Montpellier said...

Well, I'm not sure foodstuffs are dropping back again...most of the inflation took the form of reduced packaging sizes, and I don't think that's been reversed. I don't know if the savings are enough to make up for housing prices!

Anonymous said...


The coming food shortages:

Jim Rogers on food supplies: