The Corner

Herb Allison’s Lapidary Words

We did not fully envision the challenges that we would encounter” says Herbert Allison, assistant treasury secretary, explaining to Congress why the Obama administration’s lavishly-funded mortgage-modification program has gone nowhere. I salute him for his honesty and propose that “We Did Not Fully Envision the Challenges That We Would Encounter” should be engraved on every marble ediface in Washington, D.C. Translate it into Latin and put it on our depreciating greenbacks.

As the economy founders, the Obama administration has put a lot of hope and more than a little change into two things: expanded unemployment benefits and helping mortgage borrowers avoid foreclosure. My former Daily Texan colleague Renae Merle reports in the Washington Post that the administration now proposes to combine those undertakings: a new unemployment benefit in the form of a mortgage-relief program, “requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed.”

Indeed, the administration is clearly having night terrors about a second financial crisis being spurred by a deepening wave of mortgage defaults, so the program is full of Rube Goldberg stuff to bribe and cajole bankers and keep them from foreclosing on defaulting borrowers. The Post reports that the “new effort also increases the incentives paid to those lenders who find a way to avoid foreclosing on delinquent borrowers even if they can’t qualify for mortgage relief.”

Let’s repeat that. These borrowers: A., are delinquent; B., don’t qualify for any existing mortgage-restructuring programs; so, C., Uncle Sam is just going to keep throwing money at the bankers, basically shelling out whatever it takes to keep these delinquent borrowers in their houses, these delinquent loans on the books, and housing prices leaning on yet another political manipulation of the real-estate marketplace. And the theory is: this will stabilize the market. Real-estate investors may seem kind of stupid sometimes, but they are not that stupid.

Mr. Allison should get used  to repeating: ”We did not fully envision the challenges that we would encounter.”

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