Mortgage failures

Congress got an earful today on why the administration's loan modification program is such a mess. There are lots of reasons, but the underlying problem centers on all the borrowers who have negative home equity. From Bloomberg:

"The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse," Julia Gordon, senior policy counsel at the Center for Responsible Lending, told the committee. "Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts."

Even a Treasury Department official admitted that fewer than half of the homeowners targeted for mortgage relief are likely to qualify for the government program. There's more talk about requiring lenders to reduce outstanding principal for folks who are underwater (that is, they owe more than their homes are worth). That one seems a little iffy, but all the possible answers come with various amounts of baggage.