Half of US Home Modifications Default - Again

As I was writing this piece, I thought it sounded so very familar.  Then I remembered - I already wrote this piece.  In 2008. [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]  I remember when it was posted to SeekingAlpha.com how I was told by certain commentators to just wait.  These first X number of government programs were not aggressive enough.  It's not fair to use them as a judgement if the government peeing away money left and right was the correct gesture.  Well, it's been 15 months and any number of government housing programs hence, each becoming more aggressive and where do we stand?  In the same exact spot. 

Within 9 months, half of Q1 2009 modifications had RE-defaulted by the end of 2009.  I am sure the apologists will tell me AGAIN the programs are not aggressive enough.  And to wait, it will start working.  Any minute now.

Via Bloomberg:

• More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.  The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

Not too shabby, a 60% failure rate once you expand it out to 12 months.  Actually I believe that is called "success" in government work. 

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But as we have seen the past year, the true suckers are those who are in the other 40%.  They are making payments on their homes?  Look people - do I have to explain the "suck in government monies game and live a rent free life" to you again? 

Step 1: Stop making payments, live rent free for months on end as you haggle with bank - if you are really good you might be able to squeeze a year out.  Perhaps 15 months.  More money to shop and make sure you keep your high end car (that you deserve)

Step 2: Have government design program to save you  (of course said program has to pay the banks money to have them agree to be part of the program - banks win in every scenario in Cramerica).  Go shopping.

Step 3: Bank reluctantly drags feet and offers you program after months of document exchange.  Go shopping.

Step 4: Make 1 mortgage payment (optional).  Go shopping.

Step 5: Re-default (try to keep laughter down so neighbors who pay mortgage don't hear).  Go shopping.

Step 6: Wait for government to design a new program for you (i.e. repeat step 2 but bigger and better).  Go shopping.

Step 7: See step 3  (at this point you should have played the system for nearly 2 years - if you repeat it for a second iteration, you might be able to pull off another 2 years of "rent free living!" out).  And please don't forget to support our retailers.

I am willing to sell this handy "Do it Yourself" worksheet to the 40% who are not understanding how to scam their fellow taxpayer for the introductory price of $0.99 (please make a Paypal donation in the right margin of the website - thank you)

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• Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

Sam, it is not pointless.  It is a backdoor stimulus plan.  I pointed it out as such last fall and now everyone else is catching onto the "game".  The banks get free money for "participating".  And the consumer gets to go shop and help drive the American consumer driven economy (look at those same store sales!) as they play the system for 18-36 months, almost all of those without making 1 darn mortgage payment.  [Feb 18, 2010: Jim Cramer has Lightbulb Moment - Not Paying Mortgages is Keeping Americans Spending]  Just multiply a $1300, $1500, $1700 monthly payment x all the people in any stage of default and you have yourself the permanent stimulus plan, rolling quarter after quarter - year after year.  I did! --->>>>>  [Nov 25, 2009: America's Stealth Stimulus Plan; Allowing It's Home "Owners" to be Deadbeats]  We all win here. Especially since the deficit does not matter.*

*Source: Cheney.

Plus in government, 60% failure is a high achievement.

• Assistant Treasury Secretary Herb Allison defended the program at the Congressional hearing, saying it has shown signs of stabilizing the housing market.

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Even better news, when at first second third fourth fifth sixth seventh eighth ninth tenth you get the picture you piss the taxpayer's money away, try try again!  Program #XX (I can't keep track, it might be program 15, program 18, program 25) since 2007 is being rolled out today.  The 2nd program in 2 months in fact.  (maybe we can do 12 housing programs this year alone)  And (shocker) the banks are being paid even more in this one to participate.  When I grow up, I want to be a bank.

• The Obama administration announced programs to help U.S. homeowners avoid foreclosure, including subsidies for borrowers who owe more than their home is worth.
• The plan would increase payments to lenders that modify second mortgages.  The lender would have to cut the amount owed by at least 10 percent to less than the value of the home. The first and second mortgages combined would have to be no more than 115 percent of the home’s value.
• The Treasury plan will help unemployed homeowners reduce mortgage payments for three to six months while they look for work. If homeowners don’t find a job in that time, or if they find a new job at a lower salary, they will be evaluated for further assistance.
• Under the new programs, existing incentives will be expanded for borrowers with FHA-guaranteed loans, and relocation assistance payments will be doubled for borrowers who have to move out of residences. Servicers will be required to consider principal writedowns when modifying loans and the Treasury will offer incentives for principal reductions.

Again people of America, please follow my 7 step program (details also can be found at 1-800-Default) and if you are really working it, you might not need to make another rent/mortgage payment until 2013.  Time for mamma to get some new shoes (or a new car).

Go buy some retail stocks!