On Wednesday, at a press conference at the Manhattan Municipal Building, the most powerful local union presidents and the city’s chief financial officer told the Big Banks enough is enough. Rather than wait on the Obama Administration to finally put some teeth into its voluntary mortgage modification program (that the banks are voluntarily taking a pass on), these leaders are taking matters into their own hands.
I can ignore The Nation's pro-union polemics to see the real problem here. First, banks don't have a whole lot of leeway to rewrite underwater mortgages. Doing so would destroy the book value of their loans and immediately make many banks insolvent. Mass mortgage mods would immediately relaunch the credit crunch. This is why forced mortgage modification programs like HAMP are doomed to fail. The principal writedowns necessary will destroy the banking system.
Furthermore, homeowners in default who get mortgage modifications tend to default anyway when their underlying economic situations fail to improve. Recent data on deteriorating "cure rates" makes this clear.
I congratulate union leaders for once again demonstrating their extreme stupidity. They've jumped on another slow train to nowhere.
