Today, 11 Million households are underwater with their mortgages. Fully half of them also have second and/or third mortgages. Almost all of those first, second and third mortgages are adjustable rate mortgages and will start being reset in the very near future. It seems unavoidable that we are going to see a huge number of home owners walking away from their homes. That will bring huge losses for the banks and more blighted neighborhoods. It will also increase the housing inventory for sale and further depress the home building industry.
The problem is that none of the modification plans currently in use can consider second and third mortgages so they do not really take into account all of the expenses of the household they are trying to modify. That is one of the biggest reasons that most modification plans fail.
All this could be avoided if bankruptcy court judges were allowed to modify mortgages because the judges can consider all of the household expenses and all of the income. A bill to allow exactly this behavior was introduced in the Congress last year. (See an earlier post.) Sorry to say, the Wall Street banking lobby killed that bill before it even got out of committee.
So here is the take away from the last few years;
*Wall Street Banks created phony financial "innovations" that did absolutely nothing beyond making Wall Street Bankers disgustingly rich.
*Almost all of the Wall Street Bankers who caused the Great Recession Conspiracy are still in their jobs.
*Wall Street Bankers have killed every single attempt to increase regulation of Wall Street Banks.
*Everything is in place for the next Great Recession Conspiracy to occur. Nothing has changed except that you are measurably poorer and Wall Street Bankers are obscenely richer.
*But before we get there we have to get out of this recession and the U.S. Government is doing nothing to solve that problem.