A lot of you probably haven’t heard of the Permanent Mortgage Modification Program. In a nutshell, it’s a federal aid program designed to help homeowners who are in danger of foreclosure.
The program became a major cog in the Obama Administration’s action plan following the collapse of the mortgage market in 2008, as many people who had been approved for easy credit on homes suddenly found themselves unable to keep up with the mortgage payments given the collapse of the economy.
So how is the program working out? Not well. As of April 30, taxpayers have lost $815 million because the program has a much higher re-default rate than the Obama Administration expected. How high? Try 46 percent.
That’s right. Almost half the people who receive government aid to prevent foreclosure end up defaulting again under the new modified mortgage. It’s the latest government program that is costing far more, and accomplishing far less, than expected because the assumptions behind it were wrong and the necessary controls were not put in place.
But the primary reason the program is failing is that the whole idea behind it is wrong. The mortgage market collapsed in the first place in large part because so many people were encouraged to take on debt to buy homes they really couldn’t afford. Propping them up with a modified mortgage seems like a nice thing to do because they don’t lose their home, but in fact, the home is their problem. It’s a financial burden they can’t afford and probably should never have taken on. You’d actually be doing them a favor to move them into a more modest home with payments they can handle.
As it stands, this program tried to put a square peg into a round hole – for a second time – by once again saddling people with homes they couldn’t afford. The result is that nearly half of them – so far – have ended up in foreclosure anyway.
I’m all for home ownership. The more people who can responsibly purchase homes, the better. But as we’ve seen since 2008, there are good reasons mortgage lenders have challenging requirements you need to meet before you qualify. Owning a home is a huge financial burden, and if you don’t have the financial strength to handle it, no one is doing you a favor by putting you in that position.
What the Obama Administration has done with this program is impose that burden, for a second time, on people who have already shown they can’t handle it. The result was predictable. I’m all for helping people, and this is no way to do it.
