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This Probably Comes as No Surprise…

By JLP | March 26, 2010

From Bloomberg:

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Is this a surprise to anyone?

Now the administration is looking at requiring lenders to cut mortgage payments for the unemployed to no more than 31% of income. I googled and found that the average unemployment check is $293 per week (rounds to $1,270 per month). That works out to a mortgage payment of less than $400 per month. It’s a temporary measure but wow. If you lent someone $200,000 to buy a house, the payment would be about $1,200 per month (assuming a 6% interest rate for 30 years). Had the bank lent the money WITH NO INTEREST, the payment would have still been over $555 per month.

I wish the administration would concentrate on CREATING JOBS rather than trying to dictate private matters. You create jobs and all the rest of this stuff will take care of itself.

Topics: Housing Market, Mortgages | 8 Comments »


8 Responses to “This Probably Comes as No Surprise…”

  1. BG Says:
    March 26th, 2010 at 11:20 am

    Is there some regulation that actually prevents a bank from foreclosing, if the bank chooses to do so?

    If not, then this is a non-story — since the banks are doing what _they_ deem is in _their_ best interests, by modifying loans in the hopes of saving themselves from even higher losses.

    If you look at it from the point-of-view that 48.5% of the modifications have _not_ defaulted, that probably works out to a pretty hefty savings, for banks, on those loans that didn’t go into foreclosure.

    Reading the article closely:

    “…The administration’s new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, OFFERING FINANCIAL INCENTIVES for the first time TO LENDERS to cut the loan balances of such distressed homeowners….”

  2. JT Says:
    March 26th, 2010 at 11:36 am

    Truly sad. $75 BILLION dollars wasted.

    JLP, I think creating jobs is the right idea but I think that’s easier said then done. Where are all these jobs going to come from? There are no drivers for jobs thanks to fictitious accounting, bubble blowing and smoke and mirrors for the past 30 years.

    A better bet would be getting the government out of as much stuff as possible, including job creation. We don’t need more intervention into the market, trying to push “green jobs” or something else as the future. Let the private sector determine if green jobs are the future or not.

    A great first step would be restoring the rule of law, and indicting every single person responsible for fraud in this bubble. Every real estate agent, mortgage underwriter, lawyer, or stock broker that knowingly engaged in fraudulent activity should be thrown in jail, restoring confidence here in the US.

    Next, we need to stop the pretending and end this prop-up program along with a host of others. Restore mark-to-market accounting and force the banks to realize their losses. Let the bad ones fail and the good ones take over. Tell the world that we will not tolerate criminal behavior, nor will we help out those who bet it all and lost.

    Finally, cut unnecessary public services, kick out the public union parasites and privitize as much as possible. The goal is to impose as few taxes as possible on those still earning an income. This is absolutely not the time to be increase taxes of any kind. It will only make things worse.

  3. Kirk Kinder Says:
    March 26th, 2010 at 12:27 pm

    I agree with JT, but I fear we won’t come close to any of those goals.

    The 1920 Depression holds the key. Harding cut government expenses and taxes by 50%, and the government got out of the way. Eighteen months later the economy was humming again. There was pain as the GDP dropped 16% and the markets over 50%, but they got it over with and moved forward. The Great Depression was just the opposite. The government got way too involved and hindered the ability of the economy to recover.

  4. Chad Says:
    March 28th, 2010 at 3:44 pm

    No government, let alone any President, creates jobs. Governments pass laws that restrict job creation, but let’s dispense with the false believe that the government creates a damn thing.

  5. BG Says:
    March 29th, 2010 at 9:42 am

    #4 Chad) Government creates the environment to encourage job/business growth, at least a good government would. Total anarchy (lack of laws) would not be a boon for business.

    Infrastructure spending: interstates, railways, telecommunication, electrical grid, educated (& healthy) population, law enforcement / prisons, courts to maintain property rights, etc — all encourage job/business growth. We’d have none of these if it weren’t for our ‘government’.

    A good ‘beggar-thy-neighbor’ policy to bring jobs back to the US is where I’d start in the current environment: drop corporate income tax rates to 0% (and raise it on the individual side).

  6. Terry Says:
    March 29th, 2010 at 3:21 pm

    I’m paying half my poverty-level income to rent a room in a house with seven people. Can I get a modification or bailout too?

  7. BG Says:
    March 30th, 2010 at 11:00 am

    #6 Terry) Don’t think so. The bailout-of-the-day is only for people underwater on mortgages. Last year the bailout-of-the-day(s) were for people driving semi-old gas guzzlers, and the big banks.

    Government should really stay out of the affairs of private business (let them fail, let them foreclose on people, let them drive gas guzzlers, let them go bankrupt), and concentrate on creating an environment that entices business to stay here instead of offshoring more jobs.

  8. Terry Says:
    March 30th, 2010 at 3:11 pm

    Wedll I was just being a cynical cranky wiseguy. In this country, it’s all about the homeowner.

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