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Washington's Recipe for More Mortgage Defaults
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If it’s Monday, it’s time for fresh news of more coming bailouts and more government meddling to subsidize failure and play kick the can.

Two items for you:

1) Mortgage defaults continue to rise. Yeah, duh, go figure. Washington keeps intervening on behalf of bad home loan risks and their lenders, so people keep walking away.

Gee, Wally, why can’t I climb out of this deep hole?

I dunno, Beav, here’s a shovel. Maybe you’ll find a way out. Just keep digging.

Mortgage delinquencies continue to rise, and re-defaults of modified mortgages are high, and getting worse, according to a report by regulators who oversee banks and thrifts.

The report, which was released Friday, covers the fourth quarter of 2008. It showed that fewer than 90 percent of mortgages were being paid on time, a three-percentage-point drop from a year earlier.

The Office of the Comptroller of the Currency and the Office of Thrift Supervision report covers mortgages serviced by nine large banks and four thrifts — two-thirds of all outstanding mortgages.

Subprime mortgages, which were issued to people with checkered payment histories, have the highest level of delinquency, but the delinquency rate among prime borrowers is growing fastest. From March 31, 2008 to Dec. 31, 2008, the percentage of prime borrowers who were at least 90 days late on their mortgages more than doubled, to 2.4 percent.

There are now more than 550,000 prime mortgages more than 90 days overdue, and for the first time, that number surpassed the subprime tally. The subprime loans are failing at much higher rates, however — more than 16 percent are seriously delinquent.

Servicers are trying to do workouts with borrowers who have missed payments or who know they cannot pay once an adjustable rate takes effect. But a significant minority of those modifications fail. For modifications done in the first quarter, 41 percent of borrowers defaulted again within eight months, and for those in the offered during the second quarter, 46 percent defaulted again.

Third-quarter modifications, which only had five months of history at the time of the report, had already shown 43 percent re-default rate.

In all those cases, borrowers had missed at least two months of payments in that time.

Last month, you’ll recall, the Obama administration went ahead with a doomed $75 billion mortgage mod plan — a bad idea that Republicans had pimped as well.

Reminder of what I said in February about these fraud-riddled programs:

Banks have been engaged in these “mo mod” programs over the past year. The Democrats want to accelerate the pace and use the power of government to essentially provide a blanket amnesty for borrowers and lenders who made bad financial decisions. Yes, there are many responsible borrowers out there having trouble negotiating loan modifications. But this $50 billion giveaway to the banks — on top of the upwards of $2 trillion more from the Treasury Department, on top of the $700 billion in original “TARP” funding — is throwing more bad money after bad.

This massive expansion of government meddling in the housing market — yet another attempt to get federal bureaucrats in the business of rewriting loan contracts and reducing principal — will just delay the inevitable. A report released by the Comptroller of the Currency in December showed that more than half of loans modified in the first quarter of 2008 fell 30 days delinquent within six months. And after six months, 35% of people were 60 or more days behind on their payments.

Where’s the fairness in forcing prudent homeowners and renters to subsidize people who bought overpriced houses and rescue the banks who lent to them?

Tellingly, Obama chose Ft. Myers to drum up support for his wealth redistributionism. The area has been one of the hardest hit by foreclosures, as the president was quick to point out. But many of those homes are second or third homes and investment properties. And low housing prices are not a catastrophe for everyone. They’ve created opportunities for Americans who haven’t been able to buy in an artificially inflated market. The median sales price of a home in the Ft. Myers area fell 50 percent to $106,900, from $215,200 in December 2007. Bargain-priced home sales are up 146 percent from a year ago.

It’s sacrilegious to say it in the Age of Obama, but it needs to be said: Home ownership is not an entitlement. Credit is not a civil right. Your property-value preservation is not my problem. Can I get an “Amen!?”

2) Naturally, the FHA is now seeking a taxpayer bailout. Naturally, Congress will give it to them and stick us and our kids and grandkids with the bill:

Rising mortgage defaults could force the Federal Housing Administration to seek a taxpayer bailout for the first time in its 75-year history, housing officials and lawmakers said during a Senate hearing Thursday.

If defaults drain the FHA’s insurance fund, the Obama administration will have to decide whether to ask Congress for taxpayer money or raise the premiums it charges to borrowers. That decision will be spelled out in President Barack Obama’s 2010 budget, Housing and Urban Development Secretary Shaun Donovan told lawmakers.

“We are looking very closely at that issue — at the premiums that we charge, at the losses that we have,” Mr. Donovan said.

The New Deal-era agency has become the main source of financing for buyers who can’t make a big down payment or who want to refinance but have little equity. Most lenders have sharply curtailed credit to those borrowers unless their loans can get backing from a government agency. The FHA’s market share jumped to nearly a third of all mortgages in the fourth quarter of 2008 from about 2% in early 2006, according to Inside Mortgage Finance, a trade publication.

Borrowers who make at least a 3.5% down payment can qualify for a 30-year fixed-rate loan backed by the FHA, which insures lenders against defaults on mortgages.


Rising defaults are now eating through the FHA’s cushion of reserves. Roughly 7.5% of FHA loans were seriously delinquent at the end of February, up from 6.2% a year earlier. The FHA’s reserve fund fell to about 3% of its mortgage portfolio in the 2008 fiscal year, down from 6.4% in the previous year. By law, it must remain above 2%.

Hey, Washington — and especially you, John McCain, Mitch McConnell, and big government Republicans — read our lips and read our signs: No new housing entitlement bailouts.


Another take on the mortgage mod defaults here.

(Republished from by permission of author or representative)
• Category: Ideology • Tags: Subprime crisis