Thursday, October 28, 2010

So What Are We Going To Do About These Problems Then

So, basically, what I wanted to know was a) what if any economy improving measures are the administration planning and b) is there going to be any further actions on helping to deal with the foreclosure mess. The answers, roughly, were "yes of course but not saying what other than that infrastructure bill" and "no, not really." Overall I think the answers to the housing question were quite disappointing. I don't like the "deserving versus undeserving" rhetoric, especially in the context of the bankster bailout, and investors and second homeowners can already get help in bankruptcy court.

The biggest challenge is how do you make sure that you are helping those who really deserve help and if they get some temporary help can get back on their feet, make their payments and move forward and stay in their home, versus either people who are speculators, own second homes that they really couldn’t afford because they’d gotten a subprime loan, and people who through no fault of their own just can’t afford their house anymore because of the change in housing values or their incomes don’t support it.

And we’re always trying to find that sweet spot to use as much of the money that we have available to us to help those who can be helped, without wasting that money on folks who don’t deserve help. And that’s a tough balance to strike.
The problem is that "foreclose" is the new "issue as many crappy loans as you can for securitization." Foreclosures are how the servicers are making money, and doesn't even matter if investors in those mortgages are getting the shaft, at least until there are more lawsuits. The incentives are screwed up such that servicers prefer foreclosures to short sales or sensible principal modifications.

Obama's correct that the first wave of foreclosures were subprime and predatory lending crappy loan terms, and that now they are largely recession-caused.

The other aspect of the housing market that is worth bearing in mind is that whereas initially a lot of the problems on the foreclosure front had to do with balloon payments people didn’t see coming, adjustable rate mortgages that people didn’t clearly understand, predatory lending scams that were taking place -- now the biggest driver of foreclosure is unemployment. And so the single most important thing I can do for the housing market is actually improve economic growth as a whole. If we can get the economy moving stronger, if we can drive the unemployment rate down, that will have probably the biggest impact on foreclosures, as well as housing prices, as just about anything.

Yes, turning around the economy faster allow more people to stay in their homes. But we haven't turned around the economy, and it's unclear if Congress will pass any additional legislation, including unemployment extensions. In theory there's a lot that the executive branch can do without Congressional approval. There is still a lot of HAMP money sitting there. We own Fannie and Freddie. I just can't believe there's no way, with improved carrots and sticks, to encourage more widespread principal modifications which would both help more people keep their homes and, you know, help the economy because they'd have additional money to spend on things other than their underwater mortgages.

All of that is even without the fraudclosure mess.

Principal modification, one way or another, was always going to be the only way through this. It still is.