Mr. Obama’s so-called mortgage-rescue plan amounts to $275 billion in new debt that will have little if any lasting impact […]
little impact on home prices, as Harvard professor Ed Glaser has shown. And by the way, redefault rates on modified mortgages have been running at between 50 percent and 60 percent. This won’t change. So why should we throw more good money after bad?
Meanwhile, Wall Street is awakening to the disappointment that the securitized mortgages behind the toxic assets that have done so much damage to banks and the credit system are not being treated in the Obama program. The over- percent of this bank-owned paper is performing. It’s the securitizations that have clogged up the world credit system.
Then there’s the bankruptcyjudge cram-down, which would allow the courts to renegotiate interest rates and loan principal. This would abrogate private contracts and throw out the rule of law. Do we think future investors will put up mortgage capital if they fear judges will overturn the terms of contracts? Home-loan supplies will fall and mortgage rates will rise.
Then there’s Fannie and hardest-hit areas of the country, markets are already solving the housing problem. Writing on his Carpe Diem blog, University of Michigan professor Mark Perry notes that while California home prices dropped 41 percent in 2008, home sales in the state jumped 85 percent. It now looks like 2008 sales for single-family houses will exceed levels reached in 2007.
What’s more, the unsold-inventory index for existing single-family detached homes in December 2008 was 5.6 months compared with 13.4 months for