Housing Policy

Fannie and Freddie Get Blank Check For Christmas (Was "This Year In Loan Mods")

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(This post has been updated. See below)

Back in February I looked into the question of whether any bad mortgages had been modified at all. The year is now ending, and it turns out my ballpark estimate was right: At least one mortgage has been modified. But the number is still closer to one than the directors of the Home Affordable Mortgage Program want you to believe:

Carolyn Said at the San Francisco Chronicle reviews the numbers:

The net results have been paltry: Just 31,382 borrowers nationwide had received permanent loan mods as of Nov. 30 under the Home Affordable Modification Program (HAMP), the Treasury Department reported. Meanwhile, First American CoreLogic says that 1.7 million homes are likely to be lost to foreclosure next year.

"HAMP is turning out to be something of a disaster," said Lisa Sitkin, an attorney at Housing & Economic Rights Advocates in Oakland, who works with many struggling borrowers. "There are delays and lost steps at every turn. The bureaucratic requirements are endlessly frustrating."

In a world of massive redefaults, that word "permanent" is subject to revision. More recent deep cramdowns of mortgage principal have made a slight improvement in the redefault rate. But what most Americans always believed was a bailout too far is also a bailout too small. There just is not enough taxpayer money in the world to get that five-figure loan mod number up in any serious way.

Just needs TLC!

But the HAMP has delivered a lot of one thing: mortgage modification scams in every state. In fact, the big Boolean challenge in keeping track of mortgage modifications is to separate the actual news from the "Bad Credit? No Problem: If you've been a victim of predatory lending you may be eligible for federal homeowner relief"-type swindles. I'm sure somebody smarter than me can expound on why the language of mountebanks tracks the language of good-government market interventionists almost exactly.

Just in time for Xmas, Specialty Finance Group's Richard Benson sings a carol for the "jingle mailers," people who put their keys in an envelope, mail it to the bank, and disappear:

From the point of fairness and equality, Jingle Mail starts to look like an honest grass roots movement for the little guy like Joe, to get his life and finances in order. The honest, conservative, middle-class American got played for a sucker by the subprime homebuyer and the house and commodity speculators.  The Wall Street fat cats who made it all so easy kept what they stole, and then got bailed out. The government has done nothing for Joe.  Isn't it his turn to fight back?

While I would dial back some of the victimization rhetoric (because among other things, the jingle mailer gets free use of a house for some period of time), this is a legitimate take. Walking away from a situation you can't handle anymore makes sense for everybody: the borrower, the lender, the prospective buyer, and the United States of America. It's why God created divorce, bankruptcy and foreclosure.

UPDATE: Why wasn't I looking for the buried Christmas Eve story? As John Thacker notes in the comments, the Department of the Treasury announced today that it will lift its $400 billion cap on support for the failed GSEs Fannie Mae and Freddie Mac. More here and here. The Treasury's press release bears the conveniently bland headline "TREASURY ISSUES UPDATE ON STATUS OF SUPPORT FOR HOUSING PROGRAMS" -- because I guess "Merry F'ing Christmas: Your grandchildren will live in penury so we can prop up a bunch of deadbeats and incompetent bankers" was taken long ago.