I Told You So

Les Christie puts together a scorecard for foreclosure prevention programs under the Obama Administration. The programs are all either huge disappointments or "too soon to tell."

In December 2008, after Mr. Obama had won the election but before he took office as President, I wrote,

What we need is an honest housing market, with legitimate owners, legitimate renters and prices that balance supply and demand. Loan modifications undermine the honesty of the market. They delay the necessary adjustments. With foreclosures, it might take two years for the housing market to find a bottom. With loan mods, it will take at least ten years.

Given that so much of the business cycle is tied to housing construction and related purchases of durable goods, it is fair to say that the overall economy is unlikely to overcome a dysfunctional housing market. Which is what the loan modification programs have managed to sustain. Who wants to invest in a house while there are still so many houses "owned" by people who cannot afford them?

In my opinion, mortgage loan modifications are the biggest macroeconomic mistake of the Obama Administration. I could not tell you whether the stimulus bill helped or hurt. I am skeptical that the health care bill or the Dodd-Frank bill had much effect. But I am pretty sure that I was right in 2008 when I said that the housing crisis would be prolonged by efforts to modify mortgages. As you look around for places to cast blame for the depressing job statistics, do not overlook loan modifications.

I told you so.

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