Saturday, January 3, 2009

Loan Modifications Don’t Get Done: History Repeats Itself

HUD’s Hope for Homeowners modification program has been a dismal failure, with only 312 applications since October (vs. a target of 400,000 over three years, more details at Calculated Risk and Market Movers).

I’ve previously written about how difficult it is to do modifications on a large scale; the logistics are difficult, and borrowers are often not inclined to participate.

Unsuccessful government housing programs during downturns are not new phenomena. From Crabgrass Frontier: The Suburbanization of the United States by Kenneth Jackson:

On July 22, 1932 the President affixed his signature to the Federal Home Loan Bank Act (Public Law 304) to establish a credit reserve for mortgage lenders and thus to increase the supply of capital to the market…within the first two years of the law’s operation, 41,000 applications for direct loans were made to the banks by individual homeowners. Exactly three were approved.

A plug for this book – it is a fascinating account of housing in the United States. The link is to the 1987 edition, but it looks like there is a new edition pending which I am looking forward to.