Another Dagger Into Housing’s Heart: Defaults Rise

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There has been a great deal of data from the federal government that people who have received modified mortgages end up defaulting on those home loans. The number is estimated at 30% to 40%.

Fitch says those estimates are way too low. In a new report, it puts the number at 65% to 75% in the 12  months after the modification. It is another example showing that the $75 billion Home Affordable Modification Program has been almost entirely a waste of time and money.

According to The Wall Street Journal, “Diane Pendley, a managing director at Fitch, said the failure rate was likely to be high largely because most of these borrowers were mired in credit-card debt, car loans and other obligations.”

Looked at another way, the data means that the federal government program is  incomplete.The basic assumption of HAMP is will be able to stay in their homes if their   mortgage payments is lowered. It may also give some homeowners the hope that they can keep their properties until the market recovers, giving them some equity to use for retirement or reducing debt.

In reality, homeowners become unemployed like the rest of Americans. Many people who are working still believe that their jobs are on the line.

For the government to restructure the financial situations of citizens who want to keep their houses, the HAMP program would have to be a banking program set up to entirely restructure the debt of millions of Americans. HAMP is so inefficiently run now that it has been able to permanently modify fewer than one million mortgages. Nearly two million loans have “temporary” status that may never become permanent. Any plan to add to the scope of the program would make it far more complicated.

What the Administration did not address with HAMP is that Americans are going through a process of deleveraging that goes well beyond the costs to stay in their homes. That has been at the heart of the failure of the program and will continue to be indefinitely.

Douglas A. McIntyre