Restructuring American mortgages to keep struggling homeowners in their own homes was a fine idea, but it’s turning out that it might have been an unrealistic one. Experts are starting to regard the Obama administration’s attempts to lower the national default and foreclosure rate by creating avenues for lower monthly payments as a failure, one of the most disappointing fizzles of this generation’s housing crisis.
The Wall Street Journal is reporting that a large number of homeowners who qualified for and received restructured mortgages in an attempt to stave off foreclosure still ended up losing their homes – a “conservative projection” of sixty-five to seventy-five percent. At that percentage, I’m not sure if we should be calling the program a “failure” so much as a “catastrophe.” The number of home loans gone bad may be high enough that simple schemes like the Obama restructuring plan are just not sufficient to make big change.
Underwater mortgages are largely to blame for the failure of mortgage restructuring to keep consumers in their homes, posited the WSJ. If a homeowner is struggling to keep up payments on a house that is worth seventy-five percent of what they are paying for it, they might perceive the uphill battle to be fruitless and just choose to walk away. With unemployment and underemployment at extremely high levels, the fact is that homeowners as a whole group are bringing in less money, and values have fallen steadily over the past two years. It’s a bad combination, how matter how you look at it.
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