FT's Alphaville has a depressing assessment of the government's mortgage modification program, HAMP. HAMP actually has worse redefault rates than other modification programs. Apparently the government has not been focusing hard enough on total debt-to-income ratio; it has looked only at the mortgage payments. That means that even post-modification, there are a lot of people who cannot afford their debt loads.
What about principal reduction? This has been the holy grail of many finance bloggers, and the government is now pushing harder for it. But the column implies that there remain substantial barriers: second mortgages, other consumer debt that make the total debt-load unsustainable, and our money-losing GSEs, which are probably not going to eagerly embrace anything that would further tank the value of their mortgage portfolios. Meanwhile, the shadow inventory of housing remains huge, and will slow any recovery in the housing market.
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