19 May
2010
Posted in: Blog
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Gov’t Housing Support

Success or failure?

Our federal gov’t has been subsidizing the residential mortgage business to the tune of hundreds of billions of dollars, possibly trillions depend on how you count it (that is, if you can count it).  One such program, Term Asset-Backed Securities Lending Facility (TALF).  This March 25, 2010 CNN report announced the end of this $100 billion program, and noted that it was extraordinarily successful.  The CBO estimates that the total cost to bail out mortgage originators Fannie Mae and Freddie Mac would be $381 billion.  All these efforts and more were designed to stop the crisis experienced by the real estate market.

Were they successful?  MarketWatch reports today that 14% of residential mortgages are “delinquent or in foreclosure.”

The percentage of loans in foreclosure or with at least one payment past due was a non-seasonally-adjusted 14.01% in the first quarter, down from 15.02% in the fourth quarter of 2009, the Mortgage Bankers Association said on Wednesday. But the seasonally adjusted delinquency rate for mortgages on one- to four-unit residential properties, which includes mortgages at least one payment past due but doesn’t include those in foreclosure, rose to 10.06%, from 9.47%.

This news comes with the recent phenomenon of increasing numbers of “strategic defaults.”  A strategic default is when a homeowner decides to foreclose, not out of financial insolvency necessarily, but because the property they have the mortgage on is for significantly more than the underlying value of the property.  In other words, bad business.

All of this is bad news, at best.  It should be clear that the government can do nothing effective to stop this slide.  It’s over 2 years since the collapse of Bear Stearns, and markets should be functioning properly again.  Evidently they are not.

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