The L.A. Times today leads the newspaper with a look at Countrywide’s plan to modify up to 395,000 mortgages — 125,000 in California — to make the mortgages affordable to buyers who are living in houses they otherwise can’t afford. In some cases, those modifications will result in borrowers paying just 2.5% interest on their mortgages.
The Federal government took action last summer to encourage mortgage modifications by putting government guarantees behind the new mortgages, but for whatever reason that program doesn’t appear to be attractive enough to banks. Pimco’s Paul McCulley accurately described the basic unfairness of that effort months ago:
It runs against the streak of
basic fairness in a lot of Americans. You’re going to provide a handout
to the fool. The fool is going to be rewarded and I, the taxpayer, will
be put at risk at the margin for that handout to the fool. When all I
did was exactly what I was supposed to do. Where is the fairness here?
It’s a hard question to answer.