Wednesday, December 23, 2009

Principal Modification

It was always the only way to deal with the foreclosure crisis meaningfully. And they didn't do it.

The troubled loans' outstanding balance is around $700 billion, there are many subprime loans and the homeowners will just give up on the mortgages as they will go deeper and deeper under water, according to Geanakoplos.

"Almost all of these people are going to end up defaulting and being thrown out of their homes," he said.

The fact that the government is not writing down the principal on troubled mortgages is a "bad move," Geanakoplos also said.

"The FHA (Federal Housing Administration) is giving out loans at 3.5 percent - we're repeating the same mistakes," he added.


The policy has been to prop up prices, not people.

Heckuva job.