Monday, February 15, 2010

Mortgage mods, they're not what people think

Anyone that has been looking to buy a home in the last 6 months knows how screwed up this market is. There's not much to buy, much of what is for sale is either trash or priced in fantasyland. Most of that so called "phantom inventory" is tied up in mortgage mod purgatory. Will it ever hit the market? I'm confident much of it will especially homes that were purchased or refi'd after 2004. What really kills me though is the lack of clarity people show in understanding the whole mortgage mod process.

First of all, lets get one thing straight. The mortgage mod program isn't meant to help homeowners. It's meant to help banks. The banks loaned over 7 TRILLION dollars between '99 and 2007 much of that was mortgage debt and much of that was incredibly bad. The banks gambled that enough people would pay back that debt and they would make billions if not trillions. But their gamble crapped out. Possibly they didn't understand just how bad these loans were (doubtful) or maybe they got caught by the speed of the collapse. Who knows but the cold hard facts are that the banks are insolvent and all these so called bailouts are intended to stop the banks from failing, not the homeowners.

The homeowners are either blinded by embarrassment or stupidity or the "American Dream". It's probably a combination of all three depending on the homeowner. It doesn't really matter though. They are falling into a debt trap, and in the process helping to save the very institution that caused the problem. The homeowners are turned into perpetual renters. But renters with a ball and chain attached to their ankle, their homes. Unless there is some divine miracle that brings back home prices those people are future foreclosures waiting to happen. If you bought after 2004 you should be asking how to I get out, not how do I keep my home.

It will be interesting to see what program the government comes up with next. The end of the tax credit and the MBS purchase program should have a considerable affect on sales. It will probably take a few months to sink in but by late fall I think the market will be a mess again and we will see another round of meddling by Uncle Sam.

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