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Originally Posted by wiphan
Aren't we just delaying the problem? Past performance has shown that at least half of the people probably who will qualify for this program won't pay anyway, regardless of what their payment is. The only people who qualify have high debt ratios. Their debt ratio will be lowered with the modification, but their spending habits will not change so eventually their debt ratio will be as high if not higher than prior to the modification. So we are just delaying the foreclosure proceedings and subsidizing that with taxpayer $. In my past business experience it is usually best to cut your losses as early as possible rather than delay it and hope things work out.
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Maybe, but who knows. I would like to know what the metrics for success will be. I anticipate a re-default rate of 60% - 70%. In my experience with the HomeSaver loans (the FNMA program from last year) the re-default rate is close to 90%, it really did just stave off the inevitable. However the interest rates were market rates (which aren't all that high) but the housing ratio was not capped at 31% of income.
I look at peoples debt ratios all day, and even before this mess, the amount of debt an individual was carrying was staggering. I have no idea what people are thinking. And sure, the may go out and run up the credit cards all over again (that is the next big crisis, credit card default).
The reform I would really like to see is requiring every high school student to take and pass a personal finance class in order to graduate. I talk to adults every day who have absolutely no idea how to make a budget, how to pay bill regularly, how to plan, how to save. I think NJ is instituting something like this.
Anyway, it is a bloody mess, I hope this offers some sort of relief and the lending world can make loans for people who have some reasonable liklihood of paying them back.
I will get no assistance and continue to pay my mortgage on time for the forseeable future because I have taken a position that I am woefully overqualifed for but does allow me to honor my obligations.