A Long Term Mortgage Crisis

Posted: Feb 20, 2009 5:31 PM
When President Obama released his plan this week to prevent home foreclosures, the point he wanted to get across to everyone watching was that money from folks who have been making their payments on time will not just be handed over to those folks who got in over their heads and bought a house they knew they couldn't afford.

But as the Wall Street Journal points out, it looks like President Obama's plan may do just that.

It's estimated that around four million homeowners are in danger of foreclosure, and in order to help them out, part of the President's plan creates a $75 billion program that would go towards reducing a homeowner's monthly mortgage payment. That breaks down to about $18,750 per home.

Now, we can debate whether this is the right thing to do as it may seem that you're rewarding the irresponsible while punishing those who have been playing by the rules; but what's most interesting are the statistics that show what happens if you were to drastically slash mortgage rates to make it a more feasible number to pay each month.

According to the December report by the Comptroller of the Currency and the Federal Office of Thrift Supervision:

"The number of loans modified in the first quarter that were 30 or more days delinquent was 37 percent after three months and 55 percent after six months. The number of loans modified in the first quarter that were 60 or more days delinquent was 19 percent at three months and nearly 37 percent after six months. One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months."

While this plan spends a heck of a lot of money, it doesn't fix the loan problem for the long term. As the Wall Street Journal points out: after all of this money, we still may not have fixed the problem.

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