Monday, November 30, 2009

Throwing Good Money After Bad Money After Stupid Money After Bubble Money

Let me begin with a simple statement - most people facing or in foreclosure now probably had too much house to begin with. Anyone who cares to disagree is free to do so in the comments.

If you take that statement at face value, why do we continue to throw money at these folks for at least the third time?

Here is the key passage in my humble view:
Under the president's plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.

Borrowers that qualify for a long-term modifications can keep making the lower payments for five years. At that point, the interest rate will be set at the rate at the time of the adjustment, or about 5% today.

Loan servicers, however, say they are having trouble getting the necessary documents from borrowers, while homeowners maintain that their financial institutions are repeatedly losing the paperwork.

And once homeowners send in their forms, servicers may find these borrowers don't have enough income or have too much equity or savings to qualify. Or it may just be more profitable for the bank to foreclose on the home than modify the mortgage.
So to summarize - most of the folks in this program either shouldn't be in these places or have plenty of money but are trying to steal from the government; the government can't get the paperwork right for either the lenders or borrowers who actually can benefit from this program. So it's a complete cluster-fuck.

So basically all we are doing is re-inflating an asset bubble, and pushing back the pain of the inevitable. Why? Well we aren't bailing out homeowners really. If you think about it logically, we are basically bailing-out lenders who don't have to take foreclosure, but instead get reduced payments through this program. The program should really be called "A Way to Make it Look Like We Care About Little People While Actually Giving Money to Big Banks and Rich People" but that's a tad long and unwieldy. So I'd settle for "Business as Usual."

1 comment:

  1. Sadly, you are right on target, Fundman. But, those in power like the power and have no intention of letting the market, politics or any other inconvenience get in the way of their “rightful” position on the top of the heap. Banks, political parties, and others are vested in the bubble (and they hope it lasts forever). Doing the “right” thing is seldom at the top of the list.