Greasing the Great Glissade

Dolors & Sense

by Sanford Rose

KISSIMMEE Florida—(Weekly Hubris)—7/25/11—With friends like the Democrats, the poor need no enemies.

The Democratic Administration pledged to help the poor and middle class save their homes through a mortgage modification program launched in 2009.

To date, there are about 600,000 on-going modifications.

Only about 5,000 involve reduction of mortgage principal. The rest simply modify mortgage monthly payments—and only temporarily.

The way to prevent people from surrendering houses that are mortgaged for more than they are worth is to reduce the inflated amount they must eventually repay.

That is the road not taken.

As a result, nearly 100,000 modifications have already failed, and a significant portion of those 600,000 remaining modifications will also undoubtedly crater.

The Administration had every reason to expect in 2009 that its decision to allow mortgage servicers great latitude (to put it most charitably) in determining the type of permissible mortgage modification would doom the whole program to the miserable failure it has become.

Mortgage servicers don’t reduce principal, essentially because their compensation is based on that principal.

The lower the principal, the smaller the fees.

Also, mortgage servicers want to foreclose, especially on loans that are not on the balance sheets of their banker bosses but are lodged in trusts owned by outside investors.

That’s because they’re allowed under the terms of these trusts to deduct the lush expenses of foreclosure from the paltry amounts they eventually turn over to the investors.

The Administration knew this before or shortly after the 2009 program was launched.

It wasn’t “weakness of intellect, Birdie, I cried.”

It was “a rather tough worm in your little inside.”

The Administration lacked the guts then to expel its banker parasite. It preferred to allow defaults and foreclosures to build up until they brought house prices down to where they are today—one third to 40 percent below their 2006 peak.

Quite a glissade! And it ain’t over yet.