We hate to be the sour grapes guy. In fact, it’s a new year’s resolution to start being more positive. But we’ve got to tell it like it is.
That’s why we have to say that the Federal Housing Finance Agency (FHFA), conservator of Fannie Mae and Freddie Mac, is full of it. They sent a press release Monday announcing a most auspicious milestone: “[M]ore than 3 million homeowners helped by foreclosure prevention programs.”
Supposing, “help” is a relative term. Perhaps by “help” they mean, “mask,” “obscure,” “cover-up” or “extend and pretend.” When outgoing Director (and persona non grata) Ed DeMarco says, “help,” he must be referring to the Home Affordable Modification Program (HAMP).
It’s undisputed that about 1.5 million modifications have been completed via HAMP since 2008. Whether or not this has been “helpful” is debatable.
HAMP basically works two ways: first it lowers the interest rate for qualified borrowers. Second, and in many cases, it extends the loan term up to 40 years.
This is the quintessence of extend-and-pretend. The principal on the loan is left untouched, thus leaving the actual problem of negative equity completely unresolved. Instead, over a million borrowers have had their monthly mortgage payment reduced, while being firmly lashed to their hopelessly sinking non-performing assets.
A veritable ferment of speculator activity this year has caused artificial asset price inflation and buoyed home prices considerably. But this price bump is temporary; it only compounds the illusion that HAMP has been helpful.
While some homeowners may be satisfied with a lower payment in lieu of default and foreclosure, the market has suffered for it.
A robust real estate market has one defining characteristic: turnover. Without the turnover of “used” homes as folks upgrade throughout their homeownership lifespan, the market will stagnate. Depending on the sale of new homes to Gen Y isn’t cutting it – they just aren’t buying.
So the result of the FHFA’s “landmark achievement”? Stifled mobility and stagnant home sales.
Newly-confirmed Director, Mel Watt, takes the helm in the new year. To Mr. Watt, we have this plaintive reminder: it’s never too late to cram down!