The data for April and May prove that Obama's plan to rescue those facing mortgage foreclosure is a dismal failure. Since this issue was the cornerstone of his economic program during the campaign, its abject failure is a significant setback for the administration's economic plan.
In the month ending on May 26, there were 464,983 foreclosures of subprime and Alt-A mortgages (out of a universe of 3.2 million studied). So 15 percent of all subprime mortgages were foreclosed in May! Only 19,041 -- a paltry 6 percent -- were modified during this period. And of those modified, only 11,200 involved any reduction in the monthly payments. Only 12 percent involved any write-off of interest, fees or principal, and 27 percent of the loan modifications actually increased the monthly payments due.
Alan M. White of the Valparaiso Law School, who conducted the study, noted that the data showed that "the administration's plan to stimulate mortgage modifications does not seem to have had much effect yet, at least in this market segment" (i.e., subprimes).
And the trend lines are all bad:
-- The number of loan modifications dropped 11 percent from April to May.
-- The ratio of foreclosure losses to modification write-downs (the amount lost in foreclosure to the amount rescued by write-downs) doubled in the past month. For every dollar saved in modifications, $150 was lost in foreclosure.
When Obama launched his mortgage rescue plan, he promised that it would help 5 million households. So far, he is about 4,969,000 short of his goal.
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When will the subprime foreclosures stop? In about a year, when all of these unfortunate people have lost their homes.
Why is Obama's plan falling so far short of the mark? The fault is its own restrictions. You cannot get a loan modification if:
-- You have lost your job.
-- You owe more than 5 percent above what your house is worth.
-- You are already in default.
-- You have not yet missed at least one payment.
-- Your lender does not want to participate.
-- Yours is not one of the half of all mortgages insured or owned by Fannie Mae or Freddie Mac.
-- The reworked mortgage payment would come to more than 31 percent of your monthly income.
-- Your mortgage is over $759,000.
-- The home is not your primary residence.
The number of beleaguered homeowners who can slip through the eye of this particular needle and qualify for a mortgage modification is tiny.
And yet there is an easy remedy at hand. Obama should simply say, as they did in Sweden, that the government will buy the distressed mortgages from the banks and adjust the payments to make them possible for the homeowners. Then, when the economy comes back, the homeowners could either pay back the government what they owe for the postponed payments or sell the house and repay the feds from the proceeds. If they won't do either, the feds could then seize the house and get their money back. Cost to the taxpayers: zero. In fact, they would likely make a profit.
Why won't Obama do this? Because a Democratic administration cannot throw people out of their homes. Better to let them default and make the big, bad bank do the dirty work.
All these facts underscore how cynical was Obama's campaign in predicating so much of its economic message on an appeal to help those facing foreclosure. You don't hear Obama talk about foreclosures anymore, do you? That's because he knows he has no solution and that he won't offer any.
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