Obama’s Mortgage Modifications (program) to Fail, Amherst’s Goodman Says

[denem]

Source: Bloomberg

Dec. 8 (Bloomberg) -- The U.S. loan modification program is “destined to fail” because it doesn’t confront the real problem of negative home equity that is driving foreclosures, Amherst Securities Group LP’s Laurie Goodman told Congress.

Goodman, a senior managing director, cited the drop in home values as the main cause of defaults and urged lawmakers today to require lenders to reduce outstanding principal for borrowers who owe more than their homes are worth. Without a change, 7 million of the 7.9 million people behind on their mortgages in the third quarter will eventually lose their homes, she said...

The three-year housing slump has wiped at least 28 percent off home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.

“The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse,” Julia Gordon, senior policy counsel at the Center for Responsible Lending, told the committee. “Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts.”

Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aK_i0u8bqxeE&pos=5

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Barney Frank: “No one thinks we have done a satisfactory job.”;

Herb Allison, Assistant Treasury Secretary: 'Fewer than 1.5 million of the 3.2 million homeowners targeted by the Obama administration for mortgage relief are likely to qualify for the Home Affordable Modification Program';

Bankruptcy Reform to be reintroduced, attached to the new Financial Regulation package; and

Frank proposing 'a new federal program that will lend mortgage money to homeowners while they are unemployed'.

IMO, there is no doubt the burden of the recession and of the speculative bubble has fallen on borrowers, while lenders took off with as much of the TARP funds as they could get their hands on.

A good proportion of the blame lies with the Bankruptcy Atrocity Act, 2005, enacted under pressure to protect the "integrity' of Collateralized Debt Securities. The Bankruptcy Act kept the bubble going for another 18 months while imposing untold misery on ordinary people in financial trouble.

But as far as underwater mortgages go, those most likely to be deeply underwater are mortgages recently written to speculators. Amateur flippers will walk away from 'negative' equity, for one good reason - The jig is up.

How you separate that situation from, say Michigan, where unemployment and deep recession has leveled house prices, I don't know.

[hughee99]

1. Didn't lending money to people unlikely to be able to pay it back

get us into this mess in the first place? In the end, it sounds like Frank's plan will have the government lend money to the unemployed homeowner, who will then turn it over to the banks as a mortgage payment. If the mortgage isn't modified, the banks will have no incentive to reign in these ARMs since it will be getting the money from the government anyway. If the government is going to lend the money, it should do something about these runaway rates first, and not for just for 50% of the people it targeted for relief.

[sharp_stick]

2. Actually, the main cause of defaults

isn't the low value of homes, it's the banks refusing to allow people to continue paying the mortgages that they were paying just fine until the banks decide to jack the rate without allowing any form of modification.

Very few people would walk away from a home if they could continue to pay for it. If the banks would simply continue the payment plans set up at the time they wrote the mortgages damn near everyone would continue to pay on the home until the prices climbed back to a point where they did have equity. This obviously wouldn't work for people that were conned into signing interest only mortgages or the -ve amortization shit that should have been illegal.

The banks themselves offered all these mortgages and HELOC's and now they figure it's easier to take the place away from the people in there and leave entire neighborhoods foundering with low prices.

I hate bankers with a passion... How did the Hitchhikers Guide to the Galaxy put it.... First against the wall when the revolution comes.

[WriteDown]

4. Yeah, the banks just decide that stuff...

It's not in the contract or anything. :eyes:

[sharp_stick]

7. Life is so simple for some folks

I love black and white, it makes everything clear and some people refuse to look at it any other way.

Not all contracts are clear, that's why there's an entire legal dicipline dedicated to it, but I'm sure you know all about that too.

Bankers would never use confusing, legaleze and grey market terminology during a loan offer or modification, they are such upstanding citizens and all.

[WriteDown]

8. Contracts are made for just that purpose.

Otherwise the lawyers have a field day. :)

[sharp_stick]

9. And the people that are being

ripped off by shady mortgage brokers and scumbag banks are just the ones that can go out and get a lawyer.

That's why I deal with a nice local bank, the manager lives just down the road and the CEO isn't afraid to put his phone number in the book.

[WriteDown]

10. Yep, no personal responsibility....

I agree that for the people that fall to scams such as the elderly and some who are mentally impaired that they should have some recourse. But there are also just as many who were looking to "flip" a house. In fact, A&E made several shows based on the concept.

Dealing with a local bank is a great thing though.

[dixiegrrrrl]

3. Since Feb. not ONE permanent mortgage modification has been made by banks.

"over 650,000 home owners have been enrolled in this program. for each of these the bank or servicer gets a 1000 dollar processing fee paid by taxpayers, thats 650 MILLION dollars for doing NOTHING!!!!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x72875

[mbperrin]

5. Now THAT'S mission accomplished!

More bonuses for bankers! Ya-hoo!

Glad I left banking behind 30 years ago.

[WriteDown]

6. I used to consult with servicers who did permanent modifications

before and after the crisis ever happened so its a little disingenuine to say that none have been done, but the current program is a failure of enormous magnitude.

[Robb]

13. In-house mods, or HAMP program mods?

I believe that's the distinction.

[thereismore]

11. They should reduce the outstanding prinipal on primary residencies. nt

[Lance_Boyle]

15. All of them, or only those 'underwater?'

I don't believe the feds need to be cramming down principal at all, but if they're going to do it they're going to have to do it for everyone. I'll be damned if I must keep paying as contracted but a bunch of people who purchased unwisely get "free principal reductions" on my tax dime. Fuck that. Monkey with interest rates and payoff schedules all you need to keep people in their homes, but don't go giving some people free money for having been not-so-smart when they bought. That's just effin' criminal, not to mention extremely discouraging (yet again) for those who played by the rules and purchased within their means.

[thereismore]

16. In some kind of equitable way, which would be nearly impossible to do. nt

[midnight]

12. Let's bailout the working people and fix this mess.

[OnionPatch]

14. So the banks get the real "fix" and we get a phony one.

Why am I not surprised?