The making home affordable plan put into place by the Government may be bound to fail. Let's review the plan. In part the plan allows folks under certain conditions to refinance their mortgage. The idea is some folks can afford to stay in their home, just not at the current payment rate. The under lying theory is, it is better to keep someone in their home than to foreclose on them.
If the above is the case why then is this program not much more successful ? There are too many well documented cases of folks being foreclosed on while they are seeking a loan modification. There are too many folks being rejected. There is confusion about what the requirements are. Banks are dealing erratically in their application of modification process. This is not rocket science. This program should have a higher success rate. But it does not. Why not? Let us look for the answer in another loan modification program that has been going on for over 100 years.
Nations default on debt. But before they default on debt they typically try to restructure their debt. Restructuring usually means that creditors are made to take payments at a lesser interest rate over a longer period of time. Sound familiar? Now in order to get paid this solution is forced on creditors. But in many cases in Government the restructuring is not the preferred solution. Creditors would rather have a country go into default. This sounds like a crazy answer until we look at it closely. In all cases countries in order to get back into the borrowing game have to make some type of restitution on the debt. Creditors buy up this "worthless" debt for pennies on a dollar and then hold it and wait for the pay out. The pay out comes quickly freeing their capital and usually making this highly risky investment pay off big time. Now back to our housing market
Investors and creditors are buyig up the foreclosures. Eventually they will sell these depressed priced homes for more. Lenders will get some of their money back in the foreclosure process ,or through the FDIC insurance, or both. Then the investors who buy these places up for less will fix them and sell them for more. Guess who now makes the mortgages for the new properties? Yes, those same banks get them back with better qualified borrowers making payments. The same investors who bought the mortgages the first time buy them back again !!!
So you see Making Home Affordable only makes sense from the human perspective. Keeping folks in their homes that can make payments is a good thing. But not a good thing from an economic (greed) perspective. It is this unspoken underlying truth that has me convinced this great program meant to help people will fail.