No Runny Eggs

Here’s a new report expanding on what we’ve previously heard:

Mortgages that have been modified are redefaulting at an alarming rate

It doesn’t look like there’s any good news in these modified loans:

"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months," said Comptroller of the Currency John C. Dugan.

The understatement of the article is:

"This trend of increasing delinquencies underscores the need to understand why these modifications have not been more sustainable."

Aside from all of the obvious factors like:

1. Over leveraged to start.
2. Poor household budget management skills.
3. Ongoing home value decreases causing owners to be upside down in equity 60 days after they have their debt reset.

there is one reason that may rise above all others:  

We’ve become a bail out nation.  

The bail out mentality is part of the reason why markets haven’t settled, banks haven’t started lending and economic activity is continuing to shrink.   With the Federal government running around sprinkling their bail out pixie dust with logic known only to themselves, investors don’t know what basis to make investment decisions on, banks don’t know whether their loan terms will be honored.  

Oh, and don’t think just because you’ve been bailed out once that you need to be accountable going forward.   AIG, numerous banks and the auto industry has or will be coming back for bailout of their bailout.

So if you’re a house squater (you really can’t be a home owner if you have no priority for your asset)  that has  been bailed out once, and you’re watching what is happening in the broader world of finance, what conclusion should you draw?   If your new payments are still inconvenient or you’re upside down on your equity, again, why would you not expect  your lending institution to acquiesce a second time?   After all, the lender has likely received TARP or other Federal funding by now.   It also  likely has a new “non voting” shareholder who is doing it’s best to “encourage” that lending institution to “be a good citizen” with its recent “help.”  

To me, the Federal government’s continual willingness to bail out anything with a sob story is conveying to folks that money does grow on trees.   And let’s face it, if any of us really did see money growing on trees, which of us wouldn’t go over to reap the harvest?