Dumb government / mortgage industry bailout idea #107

First there was the Super SIV. Then there was Helicopter Ben on steroids, dropping real interest rates to zero. Then there was tax forgiveness for short sales. Then there was the subprime ARM rate freeze. Then there was encouraging rating agencies to lie about the financial health of bond insurers. Then there was the $600 tax rebate that saved the economy.

If you have a keen eye for detail, you may have noticed that none of these solved the housing mess.

Today, Treasury Secretary Henry Paulson came up with the feeblest plan yet:

The new project involves a promise by top lenders to proactively contact homeowners who are 90 days or more late on their mortgage payments. Those borrowers would be sent a letter giving them a step-by-step approach that "may enable them to "pause" their foreclosure for 30 days while potential loan modification is evaluated," according to plan overview documents.

Ooohhhh, a letter! And a 30-day pause of foreclosure! Buy that dream house now, because prices are going to be off to the races again!

I've got news for Paulson: the lenders were already going to do a 30-day pause. Neither they nor the courts have the staff to process the volumes of foreclosures that are beginning to occur. And with a huge REO backlog already, the lenders are in no hurry to take more foreclosures onto their books. Far better for them to talk to the borrowers to try to convince some of the dumber ones not to walk away.

And as for the borrowers, anyone over 90 days delinquent is probably either so underwater that he doesn't want a loan mod, or in such a cash flow problem that a loan mod won't help.

Nice try, jackasses. What's next week's bailout scheme?