Mortgage Debt Is Snowballing

Several commentators have argued that the Democrats need to do more to tie the home mortgage debacle sweeping the country to the GOP and its policies of decreasing regulation, apparently believing that the fox would properly police the hen house. I believe they are correct and someone needs to get the blame for this disaster which is dragging down the entire economy and pushing more and more businesses to the brink financially. As this New York Times story indicates, the problem of loan defaults and plummeting home values is getting worse - much worse. It is becoming a downward spiral that keeps going as values fall and more homeowners find themselves owing more on their mortgages than their homes are now worth. Also note, that it is the Republicans who are opposing legislation to try to help the very bad situation. It their view, it is fine to bail out the fat cats on Wall Street, but to Hell with regular Americans (Senators DeMint and Bunning from the South probably think the borrowers in distress are members of minorities, so why help them. Only white evangelicals count). Here are some highlights:

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When Congress started fashioning a sweeping rescue package for struggling homeowners earlier this year, 2.6 million loans were in trouble. But the problem has grown considerably in just six months and is continuing to worsen. More than three million borrowers are in distress, and analysts are forecasting a couple of million more will fall behind on their payments in the coming year as home prices fall further and the economy weakens.

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Those stark numbers not only illustrate the challenges for the lawmakers trying to provide some relief to their constituents but also hint at what the next administration will be facing after the election. While the proposed program would help some homeowners, analysts say it would touch only a small fraction of those in trouble — the Congressional Budget Office estimates it would be used by 400,000 borrowers — and would do little to bolster the housing market.

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“It’s not enough, even in the best of circumstances,” said Mark Zandi, chief economist of Moody’s Economy.com. The number of people who will be helped “is going to be overwhelmed by the three million that are headed toward default.” The bill would let lenders and borrowers refinance troubled mortgages into more affordable 30-year fixed-rate loans that are backed by the government. Democratic leaders say Congress could send something to the president next month. The White House, which initially threatened to veto the measure, has indicated that it is open to supporting the bill if certain provisions are removed.

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Representative Barney Frank, Democrat of Massachusetts and a central force behind the legislation, said on Friday that recent reports about falling home prices have rallied support for the plan. But he acknowledged that the plan may not do enough to help homeowners or the housing market. Mr. Frank, chairman of the House Financial Services Committee, said that even after a bill like this, “you may need more.”

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But not everyone supports government interventions. Some Republicans, like Senators Jim DeMint of South Carolina and Jim Bunning of Kentucky, say the proposal would use government subsidies to bail out reckless lenders and borrowers. They suggest that the housing market will correct itself more quickly if Congress does not intervene.

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[O]thers forecast that two million to three million mortgages will default — beyond the three million in trouble now — and economists at Lehman Brothers say home prices nationally may drop 15 percent by the end of 2009. That may force policy makers to consider further interventions.