Mortgage Modification Problems

The genesis of the financial crisis was caused by people getting mortgages who should not have received them. Now, the WSJ explains, modifications for these people brought on by political pressure is resulting in much worse than expected re-defaults.

Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.

This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis. It also means that to the extent that public money has guaranteed any of these loan modifications, the taxpayer will be an even bigger loser.

The government wrong on its projections? Shocking...but I'm sure they'll be right next time with their health care and cap-and-tax systems.