The New York Times is reporting what everyone at Bloodhound Blog has known for a long time about the Federal Government’s attempt to encourage loan modifications:
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
If you’re a fan of Peter Schiff, then you heard him say in the fall of 2008 that the government’s cure to a bursting asset bubble would be worse than the underlying problem itself. He was right, but the logic of politics does not care about the long term economic health of the country.
Here’s The New York Times telling us that government-backed loan modifications are:
1. delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate,
2. [encouraging] desperate homeowners [to send] payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences,
3. [are allowing banks to use] temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books,
4. [are preventing] housing prices [from] drop[ping] to levels at which enough Americans can afford to buy,
5. delaying the return to work for carpenters, construction workers, and a whole sector of the American economy.
These numbers tell the story:
In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.
Now, if in late 2008, the government had simply let foreclosures go forward without holding out hope for a loan modification program, it would’ve been an awful as opposed to merely bad 2009. But we would be seeing a recovery in the next 6 months. Instead, we’re just going to see more foreclosures for the next two years.
Update: The Washington Independent has a good article on the failure of the loan modification program.
Robert Worthington says:
Hi Damon, I agree 100%. Uncle Obama really knows how to destroy capitalism. Just ten-fold the debt and those evil capitalists will learn the ways of Moa Sey Tung through the barrell of a shotgun. Seems harmless, right…
January 2, 2010 — 8:14 pm
Damon Chetson says:
Thanks Robert. Except I reject idea that Obama particularly bad. You just need to look back to Bush.
January 2, 2010 — 8:40 pm
Jessica Horton says:
“Thanks Robert. Except I reject idea that Obama particularly bad. You just need to look back to Bush.”
The Honeymoon is over…
And you know what that means? No more Bush…
January 2, 2010 — 8:48 pm
Brian Brady says:
If you follow Schiff, you’ll note that he serially likens the Bush/Obama practice of intervention to the Hoover/FDR history. Similarly, the press maligns Bush while claiming that Obama’s big stimulii are what “saved us from disaster”.
Both (all four) are perfect examples of how to prolong misery rather than take it on the chin, dust ourselves off, and get moving again. Wouldn’t you think we would learn from our mistakes?
January 3, 2010 — 11:19 am
Wayne Long says:
“Both (all four) are perfect examples of how to prolong misery rather than take it on the chin, dust ourselves off, and get moving again. Wouldn’t you think we would learn from our mistakes?”
Exactly! Prolonging the misery is the worst thing we can do. We have to get this over with and move forward.
January 4, 2010 — 4:19 am
Patrick Hake says:
I am still amazed that the public accepts the premise that helping people stay in homes they can’t afford will solve the problem that was created by putting them in them to begin with.
Capitalism works in cycles. Things go up, things go down. However, they do so along an upward trajectory if left unchecked, due to ever increasing productivity. The fact that the government (Bush/Obama) insist on trying to modify and minimize the down cycle through market manipulation will inevitably lead to its extension, along with deminishing the future up cyle.
We need the government to do the one thing they typically refuse to do, Nothing.
January 4, 2010 — 9:43 am
James Boyer says:
I tend to agree with you, though I do not feel like the areas of Norther New Jersey are as heavily impacted as most other areas of the country.
With Wall Street recovering I can see signs that even the upper end of the housing market has some life.
We do see our share of short sales around here, but from what I see less then 10% of them ever sell. Foreclosures, well there just are not that many of them. I was only able to find 22 of them last month in Morris County, a county with almost 500,000 residents.
January 4, 2010 — 2:34 pm
Thomas Johnson says:
President 0 said it best during the campaign.
“You can’t put lipstick on a pig.”
January 4, 2010 — 8:22 pm
Bill Joyce says:
So the argument is it’s better to rip the bandaid off quickly rather than a slow peel? I don’t know about that. While I’m on board with this approach with real bandaids…metaphoical bandaids are more complex. We are all in new territory here and I don’t think anyone really knows how this is going to turn out. Slowing things down and allowing time to think, evaluate and decide might be better. How much did Congress spend in their rush to save the ecomomy? I also think that private eneterprise can outsmart our politicians. As soon as the government puts ‘financial aid’ on the table, some businesses will explore the loopholes and exploit it.
I think a slow peel might be better in this instance.
January 6, 2010 — 7:26 am