Moral hazard

What Price Deadbeat?


Makes you proud to be an American, that with a 20% haircut more than a third of your fellow citizens still fink on their loans.

Like all great science fiction dictators, it turns out the Home Affordable Mortgage Program (HAMP) can bring the world order—but at a terrible price.

The chart above, from the Third Quarter Mortgage Metrics Report [pdf], shows, for the first time since redefaults have been tracked in a systematic way, substantial evidence that very steep reductions in principal can keep bad borrowers in artificially inflated homes. This strengthens the arguments of HAMP expansionists like Elizabeth Warren, who say that the key to preventing house prices from finding their natural level is to haircut mortgage principal until it hurts.

This graph shows a steep drop in redefaults for more recent and more generous loan modifications.

Previous Mortgage Metrics reports, hamstrung by dubious early evidence, have had to engage in shilly-shallying and vague language to promote the idea that loan modification is worth doing at all, let alone at the massive scale envisioned by HAMP. Now a clearer picture is emerging: If you subsidize it, They will make at least one mortgage payment on time.

Is that success? I say a program where you spend $75 billion in taxpayer money and get a failure rate of a little less than half fails to meet the most basic cost-benefit criteria.

But then I would oppose taxpayer-backed loan mods even if they had a 100 percent success rate. The process violates all sense of personal responsibility, calculated risk, acceptance of consequences, and the many other habits that separate us from the beasts of the field. Since keeping bad borrowers in homes they can't afford also locks out future home buyers, the HAMP is not just immoral but patently destructive. Throw in that the Secretary of the Treasury, with his underwater home, and the head of the Federal Reserve Bank, with his exploding option-ARM, are completely interested parties in the practice of house inflation (in addition to their many other conflicts), and I think it's pretty clear that HAMP is finally succeeding at doing something that is bad for the free market, bad for America, and just plain bad.

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    1. Racist!

  1. The process violates all sense of personal responsibility, calculated risk, acceptance of consequences, and the many other habits that separate us from the beasts of the field.

    “Four legs good, two legs bad!”

    1. I disagree, the beasts of the field have a greater sense of risk versus reward. When the wolf chases them, they run away!

  2. Eventually, we will arrive at prices that can be supported through market supply and demand. How much pain and fiscal lunacy will happen before people accept that fact remains to be seen.

    1. I do believe the fiscal lunacy can go on until the very end. Actually I think it will make the end all the more interesting.

      If you’re going to fuck something up fuck it up good.

      1. @ hmm: Care to sketch out “the very end”?

        1. It will be a wimper and not a bang. There won’t be riots or people in the street with guns. Government will draw the pain out for years. I’m not much of an end of the world person. I see government causing slow painful deaths through subsidizing things. Which is what will happen with real estate, commercial and residential. This is just the S&L^nth. Some people are going to make a fortune off this mess. Just like the S&L mess.

          The previous was a bit of hyperbole. A guilty pleasure of mine.

          1. Thanks for the clarification.

            It’ll be “interesting” to see what effect the Thoreau- and Ghandi- followers have on the scenario.

          2. I can see that, by ‘the end’, you mean the Roman Empire becomes Italy without a middle period with the flourish of the City-State years, just the numbing moribund stench of the present state, and that is America’s future so long as the current path is treaded and the current elite are in place.

        2. You’re on to something.
          FDR showed you can stretch “the end” for the better part of a decade and continue the suffering of most folks while ‘doing something’. And getting re-elected!

          1. But FDR gave hope to the masses.

    2. Jeffersonian, there is an old saying for people investors that seems apropos here:

      The market can stay irrational longer than you can stay solvent.

  3. I’ve become numb to all things real estate.

  4. Mac: I’ll tell you what buddy, how about I take your wife upstairs and show her what it’s like to be deep inside a really big house?

    Tad: What?

    Dennis: What?

    Mac: What?

    Dennis: Uh, you–you’ll have to excuse my associate. It’s just his passion for quality real estate that makes him so intense.

  5. Just want to chime in that I agree with just about everything said in this article.

    Oh wait, isn’t it impossible for me to agree with you guys?

    1. robc’s 2 rules of libertarianism:

      1. Everyone, even idiots like Chad, agree with libertarians about something.

      2. No two libertarians agree about anything.

  6. just more evidence that mortgage modification doesn’t cure pain, it extends the pain.

    we’re creating a longer housing slump, a slower recovery, and subsidized squatting.

  7. Can’t spell hamper without HAMP.

  8. Great mod guide at
    Only 19.95, it really helped me understand the process. I recommend to all going through this process. Best of Luck!!

  9. Uh, there’s got to be a better (and more accurate) phrase that HAMP stands for.

    Here’s A Muthafuckin’ Poundin’, for example.

    1. Homes for Assholes with Money Problems?

      1. Two in a row! Sweeeet.

  10. State and local property taxes are hinged to property value. Letting property here in CA settle to real value would cause CA to go bankrupt. Not that that’s a bad thing.

    1. And all the tax revenue projections presumed rising values, so the state government is “surprised” that the revenues are dropping.
      And Carol Migden still collects a government paycheck, so it’s obvious that those in Sacto are not serious about cutting waste.

      1. Yeah, it’ll be interesting to see whether or not the Fed bails out CA. (NY may be first though).

        With a Dem congress and a Dem Whitehouse and both heavily Dem CA and NY going bellying-up first, a bailout is likely.

        I might actually register to vote in 2010. I’d probably have to vote for the incompetent ex-HP exec Carli Fiarina to have any effect. So it goes.

        I’m still pissed at her for turning the best workhorse printers on the market into crap.

        1. Didn’t she kill the HP-65? Or the HP-48?
          Or the whole scientific calculator division?

          1. If I were teh benevolent King you’d all be using RPN calculators. RPN is much easier for adhoc math.

            HP used to make a lot of high-end scientific instruments. HP’s market share on this has been lost to National Instuments and others.

        2. You know, I’ve got an HP PSC 1210 that is still working after about 7 years of use. Knock wood.

  11. According to a study by Global Insight, most houses are currently under valued. In fact, nationally houses are currently undervalued by 8.6% (a breakdown by metropolitan area is at the bottom). Though there are some parts of the country that could/should see housing prices drop, for example Atlantic City New Jersey is 30% overvalued, for most markets housing prices will recover as the economy recovers.

    1. Where I live, housing values have stayed in the dumper – but the county STILL raised real-estate taxes this year.

      And it’s lump-sum due by Dec. 31. Fuckers.

  12. I’m still pissed at her for turning the best workhorse printers on the market into crap.

    HP used to make incredible printers. I had one in the late 80’s / early 90’s that I got used, and it still lasted me about four years. I bought one during her reign, and it lasted less than two.

    1. In addition to excellent printers, HP made some high-end test equipment that may not be noticed directly in the consumer/business end-user market.

      To get a new electronic bus to work, for example, you need test equipment that is at least a decimal order of magnitude faster than the new bus. HP used to be a heavy hitter in that area.

      Carli fucked up HP hard on that. But she’d probably be running against Barbara Boxer. Choices.

  13. Barbara Boxer? Wow. I’d have to go with Carli over her, if there was no Libertarian.

    The one crappy CEO I’d love to see go into government is Chainsaw Al Dunlap. Even with the corrupt accounting, a guy who’s basic strategy is to fire everyone would be perfect for pretty much any governmental entity I can think of.

  14. To my eye, that chart is quite damning of the program, because it shows (even throwing out the 30 day delinquency bars) that delinquency rates on modified mortgages are still extraordinarily high. 60 day delinquency rates start at something north of 20% and go up from there.

    I didn’t RTFA

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