Another Blow To Housing: US Mortgage Plan Fails

The US government plans to put as much as $75 billion into programs to keep people in their homes and stanch the flow of mortgage delinquencies and foreclosures. The intention behind the plans is to build a safety net under home price by reducing the odds that people will default on their home loans and abandon their residences.

The program has been an extraordinary failure and housing prices will suffer because of that.

The federal government reported that only 66,000 people have had their mortgage payments permanently reduced since the programs began. There were 853,969 homeowners in the program at the end of last year, but most have obviously not qualified to move from a trial status into the permanent group.

The process has been undermined by paperwork which is complex, banks which have little reason to coöperate with the program, and the plans lower monthly payments but not the total amount of each mortgage. This means many homeowners have underwater mortgages and would have to pay their lenders a portions of their home loans if they sell their houses.

Until the federal programs resets loan principles and allow banks to do so without taking damaging write-offs, the plans are doomed.

Douglas A. McIntyre