by Pete the Banker–New Mortgage Loan Applications have collapsed since the April 30 expiration of the first time home purchaser’s tax credit declining to there lowest level in 13 years (here). Government subsidy has simply been delaying the inevitable.Jay Brinkman, Chief Economist of the Mortgage Bankers Association, stated Wednesday that seriously delinquent loans and foreclosures are at a historical high. More than 10% of all homeowners have missed at least one payment in the first quarter of 2010. A Reuters article posted on CNBC yesterday stated that, “Despite government efforts to modify loan terms, foreclosures have mounted as seriously delinquent mortgages work through the process of bank repossession.”
“The shadow inventory of bank repossessed properties as well as distressed mortgages facing foreclosure will take nearly three years to clear at current sales rate” according to Standard and Poor’s. Moody’s reported that the “under whelming performance” of the Treasury Departments Home Affordable Modification Program (HAMP) “will drive housing prices down another 8%” this year.
Originally the $75 Billion HAMP program was scheduled to help 4 million homeowners prevent foreclosure, but the program has so far reached only 1.2 million homeowners. Of those only 300,000 permanent home loan modifications have been finalized over the past year, while failed trial modifications exceed that number. HAMP Treasury Loan modifications according to S & P will ultimately display a 70% re-default rate based on current trends and “may simply have delayed the inevitable, creating the demonstrated shadow inventory of troubled loans” and these distressed loans will “likely have to be liquidated”. According to the Associated Press and CNBC this mortgage crisis is a continuing drag on the American economic recovery.
Despite the Billions spent by the Obama Administration, their housing and housing finance initiatives have failed, are prolonging the housing crisis and increasing the over supply of housing on the market. The homeowner tax credit, the HAMP program and generous subsidies of Fannie Mae, Freddie Mac and FHA, in attempts to shore up the falling housing market, are simply delaying and prolonging the need for inevitable housing price declines, delaying inevitable foreclosures, and providing obstacles in allowing the housing market to clear by adjusting to an equilibrium level between supply and demand.
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