Homeowner Bailouts Destined to Fail
After years of observation of American consumers, Mr. ToughMoneyLove some time ago arrived at the opinion that some folks just are not meant to be homeowners. This does not mean they are bad people or fundamentally undeserving. The fact is that some people lack the resources, judgement, or discipline to make good financial decisions or to fulfill all of the financial obligations associated with owning a home and paying on a mortgage. For them, it’s just not going to happen.
Faced with the initial results of failed homeownership policies, our government had two choices. The first would have been to concede failure, pull all of the “homeownership for everyone” programs and attitudes off the table, and let the markets work things out. (In other words, be attentive to the hard truth as spoken by me and others.) The second option was to deny the truth and create yet more programs to “rescue” the troubled homeowners from themselves. This included strong-arming lenders into adjusting the mortgages of those in default and even throwing more money at the problem by guaranteeing re-worked mortgages.
Well, the initial returns are in. Mr. ToughMoneyLove was right and the government was wrong. The U.S. Comptroller of the Currency regulates banks and tracks data on mortgage default rates. Here is the latest data on mortgage re-default rates.
What the chart shows was summarized nicely by the Comptroller himself on December 8:
After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent.
I don’t know if the data can be any more compelling than this. A majority of the people who struggle to meet their payment obligations on a market-rate mortgage will also struggle on a re-worked mortgage that has been adjusted to supposedly make it more affordable. Default, re-default, game over.
Yesterday, GM did something refreshing. It admitted that it made some bad decisions in its entire automotive marketing strategy. It came a little late but it was better than a stubborn insistence that its dire financial condition was not its own fault.
I think it’s time that we get some of that humble pie eating from our federal government regarding its failed housing and mortgage policies. Bad government housing policy creates unrealistic expectations and costs the taxpayers a lot of money. I’m tired of it.