
In a further attack on the housing market, the New York Times recently reported that President Obama may be amending his loan modification program to make it even more difficult for defaulting homeowners to be foreclosed upon. The Times states:
The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.
That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.
Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.
To be fair, the effects of this program may be minimal, with some interpreting the ban to be more about PR than anything substantive:
Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”
…The Mortgage Bankers Association said its members were already doing what the administration was considering.
“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.
Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.
Regardless of the impact however, this potential loan modification addendum adds insult to the injury of an already wrongheaded and destructive policy, and will only prolong the pain in the housing market.
The reasons for the woes in housing are quite simple. Banks extended mortgages to borrowers that were poor credit risks, and many borrowers took out mortgages that they shouldn’t have either out of speculation or profligacy. That the depression is throwing people out of work and keeping many jobless exacerbates the problem, in that unfortunately many who could have reasonably expected to afford their homes now cannot given their lack of sufficient cash flow. Of course, truly prudent buyers might have saved to purchase their homes outright with cash.
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