Government mortgage program FAIL

The saga of the regime’s Home Mortgage Bailout FAIL continues. (previous post here) The $75B program, a topic of scorn from the TARP Inspector General, was intended to bail out home owners who had overborrowed, treated their home equity as an ATM, or who fell for the myriad of impossible loan schemes cooked up by lenders under pressure from the government. Of course, the bailout funds come from the taxpayers.

This article (from AP) reports that the number of people who have dropped out of the program has now exceeded the number who have been helped.

The Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month alone,155,000 borrowers left the program — bringing the total to 436,000 who have dropped out since it began in March 2009.

About 340,000 homeowners have received permanent loan modifications and are making payments on time.

The government bears a large measure of responsibility for this crisis. In their zeal to increase home ownership, they pressured lenders to loan money to people who traditionally (and rationally) wouldn’t qualify for a mortgage. Bailing out irresponsible lenders and borrowers will do nothing but prolong the inevitable agony.

As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.

Even after their loans are modified, many borrowers are simply stuck with too much debt — from car loans to home equity loans to credit cards.

“The majority of these modifications aren’t going to be successful,” said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. “Even after the permanent modification, you’re still looking at a very high debt burden.”

So far nearly 6,400 borrowers have dropped out after the loan modification was made permanent. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.

Credit ratings agency Fitch Ratings projects that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified.

This is yet another sad example of government FAIL. We simply cannot afford this.

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2 Responses to “Government mortgage program FAIL”

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