The New York Times yesterday reported that the Obama administration intends to put more pressure on mortgage companies to lower mortgage payments for troubled homeowners. The Treasury Department's Making Home Affordable program is having problems meeting its goal for permanently modifying three to four million homeloans that are at risk of foreclosure.
According to The New York Times, the Treasury Department will use "shame" in order to persuade lenders to lower mortgage payments. Arguably there is a lot for a mortgage lender to be ashamed about. For one thing, throwing people out of their homes into the winds of increasing unemployment, whipped up by a still shaky economy doesn't look good. What makes it extra distasteful is some of these very lenders have been enjoying increases in their stock prices since the market bottomed in March 2009
The good times in the market, fueled by a devalued dollar and low interest rates, see investors borrowing at these low rates and buying stock and other assets, particularly in the foreign markets. Some of these firms, such as Goldman Sachs, are allegedly rolling the dice dealt by the federal government in the form of TARP (Troubled Asset Relief Program) and other financial bailout plans and enjoying the benefits while struggling homeowners are left to ask, "where is my bailout?"
Henry J. Paulson, the Treasury secretary under President George W. Bush, and Federal Reserve chairman Ben S. Bernanke argued in October 2008 that the bailouts were needed to unfreeze the credit markets; to get banks lending to other commercial enterprises again. In short, there was a market failure that justified the intervention.
According to the Treasury Department, the Making Home Affordable modification plan commits $75 billion to keep 3 to 4 million Americans in their homes by preventing avoidable foreclosures. Unlike the TARP bailouts afforded to the likes of Citigroup and AIG, there was no market failure in housing. Although the government enjoys painting its modification program as a housing market stabilization plan, the problem the Obama administration was allegedly trying to resolve was keeping people in their homes versus helping people enter the market to buy a home.
In other words, it is important to study how the administration defined the housing problem and determined a need for a modification program. By failing to properly frame the issue, the administration now finds itself in a situation where the program is not working.
Its biggest problem was phrasing the foreclosure dilemma as a market problem versus a social welfare crisis. Arguably defining a loan modification program as a welfare plan may not have gone over well with the majority of homeowners who are paying their mortgages but at least it would have been more direct and honest.
In addition, by phrasing the foreclosure problem as a market problem, it laid the ground work for implementing the wrong policy approach. By making it a market problem, it meant making the alleged market culprit, the lending industry, a partner in resolving the problem.
Bad idea. Lenders have no interest in modifications simply because modifications would result in less revenues being collected. It's no surprise then that lenders are basically nonresponsive to consumer attempts to modify their loans, whether it's by losing hardship packages submitted by consumers or simply not returning phone calls.
If the Obama administration wants to stabilize its foundering modification program, its best bet is to make direct cash payments of one year of mortgage payments or $25,000, whichever is less, to three million consumers who can document that they have lost the jobs or the sources of verifiable income they had when the received their home loans. At $25,000 a head, we are looking at approximately $100 billion. All that left over TARP money could cover that.
The modification program was poorly premised from the beginning but it can still be saved by calling it and treating it as what it is: a social welfare program.
Comments
Should Obama push lenders to lower mortgages? Hell to the mother f'ing no!
These mortgages are considered by law to be CONTRACTS between 2 consenting parties.
THIS or any government have no right, legally or morally to become a third party to that contract.
If this happens, we live in a country that is no longer free.
"That all persons invested with the Legislative or Executive powers of Government are the Trustees of the Public, and, as such, accountable for their conduct: Wherefore, whenever the ends of Government are perverted, and public liberty manifestly endangered, and all other means of redress are ineffectual, the People may, and of right ought, to reform the old, or establish a new Government; the doctrine of non-resistance against arbitrary power and oppression is absurd, slavish and destructive of the good and happiness of mankind. "
Maryland Constitution and many other state constitutions contain the same language. FOR THIS REASON!
I don't see goverment challanging contracts. It is however the goverments job to investgate all parties involved when Federal Deceptive Lending Practices, Usuary, and Fraud Laws have been broken. I still don't see how a borrower has the employed licensing power to enforce a loan by signature. The first requirement to home loans is providing two years worth of Taxes, I don't see the I.R.S. reporting that people inflated their incomes and intentionally over paid taxes just so they can purchase a home beyond their affordable means. It's not believable ethical behavior. Although it is believable for a borrower not to disclose debts. It's a case by case bases. Part of the over all lending scam is to hurriedly foreclose on borrowers to suffer their financial means to take action. Goverment could provide affordable arbitration to borrowers looking to rescind. It's unfortunate financial institutions couldn't regulate themselves and acted upon greed.
I can't believe America has come to this. We have the President "shaming" the big Banks he just bailed out. The small Banks and Credit Unions will be the heroes in all this. Assuming they can survive the foreclosure and repossession wave (see: repofinder.com). Break up the big Banks and let the free market be free.
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