‘Money For Mortgages’ Misfire
Like the “Cash for Clunkers” and “Cash for Clunkers – Household Appliance Edition” programs, we’re learning that “Money for Mortgages” or as the Obama administration calls it “Making Home Affordable” program is a big fat flop. According to some economists, it might not just be a flop, you know, one without consequences (except the loss of $75 billion), it might be doing much more harm and greatly slowing down the recovery.
According to The New York Times some are discovering the hard truth of being on the receiving end of a government handout, “…desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences.” Well, that’s nice, some people are expecting to actually keep their homes, but truth is, they’re not. Wait a second, wasn’t this program supposed to make it so more people would be able to avoid foreclosure? And to make matters worse for some home owners, the modifications have a negative effect on their credit score, so not only are they going to lose their homes anyway, their credit scores get thrown further down the toilet. Good one Obama! *high five*
The bigger problem is that the modification program isn’t allowing people to just settle up their losses and walk way. Homeowners are still struggling to make payments, banks are being forced to help them with the modification program and everyone is losing even more money and its slowing the recovery process down to a snail’s pace. According to Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund:
..banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy.
Apparently the Treasury Department has seen the err of their ways, kinda, and in November started a new program to start pushing the process along by getting people out of their homes if they can’t afford them. The Foreclosure Alternatives Program basically gives banks incentives (money) to allow short sales and to allow homeowners to just hand over their deeds instead of foreclosing.
The failure of the program is more clear when you look at the numbers. As of mid-December, 759,000 homeowners have received loan modifications, temporarily lowered interest rates which amounts to a lower monthly payment for a trial period of 3-5 months. In order to get a permanent loan modification you have to make timely payments during the trial period and submit paperwork verifying your troubled financial situation. Well, to date, 31,000 loans have permanent modifications, or 4%. Yeah, ONLY 4%. The other 96% are either out of their financial crisis, are going to need help again or end up in foreclosure anyway.
$75 billion dollars and this is how it’s spent. I haven’t even mentioned the group of people who are underwater, those who owe more to the bank than their home is worth. Don’t worry, there isn’t a handout for you folks, just keep working to pay for nothing. This is just another glaring example of government waste, instead of just letting the cards fall as they should, the government puts it hand out and does nothing but delay the speed at which they’ll hit the bottom. Apparently the Obama Administration thinks that slowly peeling a band-aid off a hairy arm is the best way too.
(h/t: John Stossel)