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Obama’s Mortgage-Aid Program Fails.

August 22, 2010

As much as I’d love to point and laugh while wearing a t-shirt that says, “I told you so, suckers!”, I can’t. It’s easy to gloat when you see such a failure come out of this administration, but fact of the matter is, it’s not the fact that another one of Obama’s policies has failed, it’s the fact that said policy failed so many Americans who expected it to help them save their homes. It’s an unfortunate side effect of terrible policy attempting to right the consequences of past failures.

I wrote about the impending failure of the “Mortgage aid program” back in January of this year.

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. New York Times

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.

To date, 1.3 million American’s have enrolled in the HAMP, Home Affordable Modification Program. Only 32%, or 421,804, of the people who have enrolled and were granted permanent modifications and are still making their payments on time. Nearly 50%, 630,000, have failed to either make their mortgage payments over the 3-month trial period, have gotten mixed up in the endless paper shuffle, or were denied a permanent loan modification for some other reason. For those that have completed their 3-month trial period are facing another struggle, they’re still waiting for their permanent modification.

Through July, the government’s mortgage-aid program had a backlog of 118,000 borrowers whose trial plans have run at least six months — three months past the typical duration for determining if they qualified for a permanent modification, the government said Friday.

The thing is, we’ve spent $75 billion on this program. Initially it was touted as being a necessary program that will help millions (3-4 million, to be exact) of Americans avoid foreclosure. We’re learning that a year and a half of this policy hasn’t put a dent in the housing crisis.

Zandi [chief economist at Moody's Analytics] said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales—when lenders let homeowners sell for less than they owe on their mortgages.

Since the start of the recession 2.3 million homes have gone into foreclosure according to RealtyTrac, a foreclosure listing service. 2010 could finish with over a million foreclosures and Mark Zandi estimates that we may see 1.5 million foreclosures in 2011. So by the end of 2011 we could be looking at well over 3 million total foreclosures. Those are extremely scary figures, especially when you consider that “[l]enders have historically taken over about 100,000 homes a year, according to RealtyTrac.” That’s quite the jump, no?

We need to hit rock bottom to recover, government interference is only slowing the process down and making it last a hell of a lot longer than it would have. Many of the people who are going into foreclosure shouldn’t have even had mortgages to begin with. They were given money they couldn’t afford to pay back (Thanks Fannie and Freddie!) and now we’re stuck in a major crisis where our government feels they’re the only ones who are capable of fixing it. I beg to differ. Get out of the way, stop forcing banks to help and let people fail!! That’s the American way. It’s certainly not my fault that some punk got a $350,000 mortgage with a $10 per hour job and all of a sudden couldn’t make his mortgage AND his interest only mortgage payments. And then there are the millions of Americans who are having trouble because they’re out of work and their unemployment is running out. Yet, we’re all paying for that $75 billion tab. Give me a break!! Are we going to start bailing out all those small businesses that health care reform put out of business too? It’s clearly getting to the point where the government needs to just get the hell out of the way and stop trying to save everything.

Hopefully America will soon wake up to see that government is not and never will be our savior.

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