Obama’s foreclosure ban proposal will just delay the inevitable

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Obama annouced today that he is considering banning all home foreclosures that don’t go through HAMP review. If you aren’t familiar with HAMP, it’s the government program to reduce interest rates, principal, and extend loan terms to help keep people in their homes. They had hoped to modify 3-4 million mortgages.

The problem is that HAMP doesn’t work.

Out of over 1 million trial modifications, only 12% have become permanent. And those permanent modifications are failing at a rate of 10% per year – an incredibly high rate. (via financialstability.gov):

Further, if you are eligible for a modification, you have probably already applied for one. Forcing bad candidates through the qualification process is just going delay the inevitable.

We need to get homeowners who can’t afford their homes out of their situation as soon as possible and into rentals they can afford. This will get them back on the road to solid financial footing as soon as possible, clear up the uncertain balance sheets of banks, and shore up the housing market.

note: Estimated Failed Permanent Modifications in 2010 = # of failed modifications in January (1,005) X 12

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