George S. May Business Blog

Don’t Call it a Bailout

More than 170,000 homeowners stuck in unfairly termed mortgages finally getting some relief from their nights of troubled sleep after months of wondering when the other shoe would drop and they might be forced out of the only American Dream most of us know.

Legislation aimed at quelling the soaring foreclosure rates has finally made its’ way under the president’s desk, giving thousands of families the chance to stay in their home

Many on Wall Street ironically have labeled this as a particularly American Crisis: a situation borne out of American sentiment that we must live in the fast lane even if we’re riding the credit payment express the whole way there.

Families were blamed for getting in over their heads, for not understanding the terms of the deals they entered into. Well Wall Street, you did know the details of your deals, and you are some of the most financially “bright” minds in America and yet for all of your chicanery I don’t see you being in much better shape.

Now that they’ve received permanent modifications under the Obama administration’s foreclosure prevention program, many homeowners have a new lease on…well not life, but certainly on their places of residence.

Some 15.5% of those who entered the program have gotten long-term adjustments through February, up from 11.5% a month prior according to a report from Treasury officials issued last Friday.

An additional 91,800 permanent modifications have been approved by mortgage servicers and are pending borrower acceptance, which means banks can still stomp on the dreams of thousands of families if they hurry. And more than 88,600 people have been denied lasting help because they did not meet the program’s criteria, while another 1,499 homeowners have had their permanent modification terminated.

More than 835,000 people are currently in the process of  trial modifications, a review period during which banks check whether borrowers can make the reduced payments and gather the necessary paperwork to verify income and hardship, and thus be fully qualified for the program. The administration’s foreclosure prevention program reduces eligible borrowers’ monthly payments to 31% of pre-tax income. Participants typically have their loans reduced by $519, or 36%.

The number of people receiving permanent help has been steadily rising as the administration increases the pressure on mortgage servicers to make decisions on those in the trial phase.

But do not call this move a bailout. This money was not simply handed over to people in the hopes they would do the right thing with it, nor is there a conspicuous lack of oversight, proof that financial institutions keep a weather eye on at least some of their transactions. This was merely a step back from the pernicious mortgages drawn up with the same measure of stability as the defaults they generated. I would not say this is a rescue for homeowners, just a significant reduction towards a reasonable amount instead of a puffed-up, outdated idea of home value.

However, some experts say that more needs to be done to help troubled borrowers, particularly those without jobs or who owe more than their homes are worth, because the buyers are still on the hook for these overvalued properties, because what kind of person shirks their financial woes when they were the cause of them (kindly assume this is a rhetorical question).

Even those who make it into a trial modification are not assured of getting permanent assistance. A growing number of people are getting rejection notices as they hit the end of their trial period, and they are back where they began: a breath away from losing their homes, which they may still owe money on despite the fact that they will no longer own them.

“While the pace of conversion to a permanent modification has stepped up since the program started, it is slow compared to the large number of loans that are still in trial modification,” according to Celia Chen, who studies the housing market. “A large number of these homes are expected eventually to be put up for sale, adding to the supply glut and causing prices to decline once again.

When the modification was first announced in February 2009, the administration said it would help up to 4 million people avoid foreclosure. More recently, however, it has changed that goal, now saying that up to 4 million people could qualify for trial modifications.

This is certainly not a bailout, and not a lot of people on Main Street seem to be upset by this fact. The idea that the government finally seems to recognize that people need assistance is a huge gain, you don’t hear these thousandaires blustering and crying how they need money like billionaires tend to. You boys keep your bailout, we’ll make our own way, as usual.

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