Mortgage Modifications

Obama's foreclosure prevention mortgage modification program is a complete failure. Out of millions of loans, the number of permanent modifications can be counted on two hands. Why? Because the banks have an incentives to drag out the process and deny losses as long as possible. This is a perverse unintended consequence of two things. The first is the bailouts that recapitalized the banking sector. The second cause is various incentives to drag out the admission of losses as long as possible. At the same time, bank regulators are pressuring banks to raise capital. It all boils down to pressure to conserve capital on the one hand, and accounting gimmicks that allow banks to not recognize losses.

The "pressure" applied to banks has no teeth, and consists of bureaucratic nonsense like writing more reports.

The numbers speak for themselves: 16 million households are underwater. 1,711 "permanent" modifications have been made.

The message to consumers is clear: Suckers pay! If you're underwater, walk (or swim) away!