Tuesday, February 16, 2010

Mortgage Modifications

Reuters is reporting Bank of America has made around 12,700 mortgage modifications with the assistance of the Obama stimulus passed last February [1]. This is better than two prior mortgage renegotiation programs under Bush, which to my knowledge affected exactly zero modifications, even though billions were alotted. Extending the figure across the board to other banks, one can guess the number of modifications overall is somewhere in the tens of thousands. Not a particularly high number given the scope of the problem, but not zero either.

Mortgage modification is a good solution, one that would automatically happen if free market principles were allowed to flourish and Congress and the Federal Reserve Bank weren't happily offering generous bailouts to the banks. In a free market, the banks would be motivated to modify mortgages because getting paid less is better than foreclosure.

As it stands, banks can avoid modifications and simply hang on to foreclosed properties if they expect ongoing government subsidies. Mortgage modification now happens only under government enticements and coercion.

1. BofA modifies 12,700 under govt program.

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