I must beg to differ. First, second mortgages have a secured interest. They can block a refinancing and will demand a payout even if the alternative is to realize zip in foreclosure. That has been discussed here and on other blogs because it is happening.

Second, the claim that HOLC is a model for now is misleading. HOLC was not created until 1934, AFTER housing prices had collapsed in the US. Here, the objective of these various rescue operations is most assuredly to find a bottom but to prevent one being found. And it that they are destined to be costly failures. Real estate is way out of line, even at its new lower values, with incomes in many markets. You can’t have housing prices systemically above what people can afford to pay.

Third, the reason HOLC worked is that mortgages in the 1930s required the homeowner to put up a lot of equity (50% or more) and they were pretty short term (five years or so). So HOLC could create a lot of relief by refinancing into newly-invented 30 year mortgages. That lowered payments a lot. And most people stayed in their house their entire life, so the life of the mortgage matched well with their likely occupancy (back then, houses were also often passed to children who lived in them).

Now average length of home occupancy is much shorter. and there isn’t any trick by which mortgage payments can be reduced. Extending maturities beyond 30 years will have very little impact on monthly payments.

Its model is the Home Owners Loan Corporation, which did a good job in the housing collapse of the Depression, and in fact generated the 30-year fixed mortgage that lasted until this calamity.

It doesn’t fix everything, by any stretch. But the critical element is to find a bottom for prices, and this is one way to do that. Nor does it expose the government to the obscene risk imagined by some. Far less than the liability of Fannie and Freddie, or even the Fed’s exposure to the investment banks.

Stiglitz, Roubini, Gross of PIMCO and others have identified it as essential.

Interest rates on the Fed debt will someday suddenly rise as everyone sees this explosion while politicians ignore it and make more promises and gov obligations. The Fed debt will suddenly look like sub-prime. The increase in interest payments will supersize the deficit in an upward spiral.

Goodbye dollar, goodbye savings.

The problem is simple. Nothing is going to happen from the government until the next administration is seated. Up to then, it’s all free-fall on auto-pilot.

Think of it as “Hurricane Katrina” for the financial sector. It should be damaging but particularly bad. But it will be very bad because there is no one in the cockpit.

The real problem was in chasing too high a return by structuring these loans so poorly.

So what if they have to mod them all? A bad contract is a bad contract, and they SHOULD be modded.

OMG, between the bailing out Fannie, Freddy, the FHA and the investment banks via the Fed, this country is going to go broke! Investors are going to demand Banana Republic interest rates for their risks. High interest rates and expensive oil are going to kill any true economic growth for the US.

HR 5579 tries to address the issue…

Emergency Mortgage Loan Modification Act of 2008 – Establishes a standard for loan modifications or workout plans for pools of certain residential mortgage loans.
States that the servicer of such pooled loans owes a duty to the securitization vehicle to maximize recovery of proceeds for the benefit of all investors and holders of beneficial interests in the pooled loans, in the aggregate, and not to any individual party or group of parties.
Deems the loan servicer to be acting on behalf of the securitization vehicle in the best interest of all such investors and holders if the servicer makes certain loss mitigation efforts for a loan in or facing payment default in the reasonable belief that the particular modification, workout plan, or other mitigation actions will maximize the net present value to be realized over that which would be realized through foreclosure.
Declares that, absent contractual provisions to the contrary, a servicer acting in a manner consistent with such duty shall not be liable to specified persons (including any person obligated pursuant to a derivatives instrument to make specified payments) for entering into a qualified loan modification or workout plan for loss mitigation purposes.
Defines “qualified loan modification or workout plan” as one that: (1) is scheduled to remain in place until the borrower sells or refinances the property, or for at least five years from the date of adoption of the plan, whichever is sooner; (2) does not provide for a repayment schedule that results in negative amortization at any time; and (3) does not require the borrower to pay additional points and fees.
States that, for purposes of a qualified loan modification or workout plan, negative amortization does not include capitalization of delinquent interest and arrearages.
Defines “securitization vehicle” as a trust, corporation, partnership, limited liability entity, special purpose entity, or other structure that: (1) is the issuer, or is created by the issuer, of mortgage pass-through certificates, participation certificates, mortgage-backed securities, or other similar securities backed by a pool of assets that includes residential mortgage loans; and (2) holds such loans.

Well, we are all screwed then. These economically illiterate bozos have willfully mismanaged the nation’s finances for decades and now they are talking about ‘nationalizing’ entire industries. Fug get a botit.