Is the mortgage modification program making things worse? An article in the New York Times gives voice to fears that by encouraging homeowners to stay in homes that they cannot really afford, Obama's Making Home Affordable program is actually increasing the agony of homeowners, who pour money down the rat hole of their mortgage rather than recognizing the loss and starting over. In the meantime, the modification programs disguise the true condition of bank balance sheets (because modified mortgages are not yet non-performing mortgages), and slow down the process of recovery.
How much truth is there to this story? Some, at least. I found myself talking to my father about this after I exchanged blog posts over the tragic case of Tom Vellucci, a Floral Park resident who lost his job and wound up with a non-paying tenant, then drained his savings trying to keep up with a modification that got him current, but didn't lower his payment. We're both longtime New Yorkers, so there's a certain local interest in what happened. We were mystified by why anyone would think that Mr. Vellucci would qualify for a modification--and more importantly, why Mr. Vellucci would have thought so.
Reading between the lines in his story, Mr. Vellucci had virtually no savings (making his house payments tapped him out in four months). His income was moderate at the best of times, and his house payment was so large that everything had to go right for him. If he was out of work or lost a tenant for any length of time, he was going to end up in defaulting. As of the story's publication, he was still on the dialysis that cost him his job, meaning he is not going to regain his income any time soon. There was no way that any imaginable mortgage modification was going to clean up this mess. Yet he gave the last of his savings to a skeezy servicer in some sort of tragic Hail Mary pass.