Housing Market Worse Than Government Reports Show. We Need Pro-Growth Policies Now!

New reports from S&P and Moody’s indicate housing crisis has 3 more years to run, that Obama’s HAMP loan modification program has been a flop and will drive down home prices by 8% this year, and that 70% of the modified loans will re-default. This is one more reason why we need pro-growth policies–not phony stimulus spending plans–now.

The “shadow inventory” of bank-repossessed properties, as well as distressed mortgages facing foreclosure, will take nearly three years to clear at the current sales rate, according to a report from the credit rating agency Standard & Poor’s (S&P). The “shadow inventory” of homes includes all delinquent loans and real-estate owned (REO) property that has not reached the market. Estimates are 3-7M homes.

One of the problems is that government programs that pay banks to modify loans are backfiring, by distracting bankers from dealing with the foreclosure problem. Moody’s, showed that the underwhelming performance of the Home Affordable Modification Program (HAMP), which the US Treasury Department launched in March 2009 to give incentives to servicers for the modification of loans on the verge of foreclosure, will drive down housing prices another 8% from Q409 to the end of 2010.

-S&P analysts predict that 70% of the loans that have been modified will re-default. The total balance of these re-defaulting loans and the current amount of serious distressed loans will reach $473.4bn, nearly 30% of the total outstanding balance on all privately securitized loans.