Friday, May 15, 2009

Making Home Affordable…Plan C?

The Government’s plan to “help” us by modifying our mortgages so we continue to make payments failing.

Wolf in Sheep’s Clothing

At least the latest plan works to un-make bad loans. Until all of the bad loans that never should have been made are un-made, we will still be faced will an epidemic of foreclosures. Encouraging homeowners and banks to take action is a positive step.

The previous plans focused on convincing the homeowner to agree to continue making payments on a home they cannot afford…they won’t be able to move, and probably won’t see a penny of equity for a decade…but the banks will continue to cash their checks and classify their loan as “performing.”

Who exactly does that help again?

The motives behind these initiatives are disingenuous at best. As home prices continue to drop, many modified homeowners are realizing that they are still better off getting out from underneath their debts. It’s a trend, you know.

Here is a chart that shows the re-default rates, by bank, for modified loans. Even for the loans that weren’t delinquent, the default rates are much higher than the overall population..indicating that once these homeowners realized that their modification wasn’t a panacea, they decided to bail anyway.


With this many modifications failing, it’s no wonder that that the Obama team is moving on to Plan C.