Stopping the Runaway Foreclosure Train
The [mortgage modification] rules now being applied . . . have a Goldilocks quality. To get a modification a borrower has to need it a lot, but not too much. If the home is “underwater” ” worth less than the balance of the loan securing it ” but the borrower can still afford the payments, there is to be no modification. If the borrower is in such bad straits that default is likely even with a modification, again that borrower is supposed to be turned down.
Modifications [go] to those who come up with the right income number, neither too high to qualify nor too low to be likely to meet the modified payments.
–Floyd Norris, “Why Many Home Loan Modifications Fail“; The New York Times (12/3/09)
The low percentage of successful mortgage modifications says volumes about (non-existent) underwriting standards in many parts of the country a few years ago.
In the language of another children’s story, the “Three Little Pigs,” mortgages are like homes made of straw, wood, and brick in their ability to withstand adverse financial conditions (the proverbial “wolf at the door”).
Even straw is too generous in the case of millions of subprime and Option-ARM loans made to already marginal borrowers.
The material that comes to mind is paper — as in all the Triple A, mortgage-backed “paper” sold by the trillions to investors world-wide.