(NEW YORK) -- Federal efforts to help struggling homeowners are not working, and instead it’s the owners of rental properties who are benefiting, said Gary Shilling, one of the economists who predicted the subprime mortgage crisis.
Shilling forecasts that rentals will continue to provide “attractive returns” for years to come, while the housing market continues to flounder.
In an opinion piece for Bloomberg, Shilling, the president of A. Gary Shilling & Co. and author of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, critiques three federal housing programs, charging “the administration hasn’t given up on its failed attempts to aid housing.”
He wrote in the third of a three-part opinion series for Bloomberg that Fannie Mae’s Home Affordable Modification Program (HAMP) is “hopeless.”
“The administration initially said this program would relieve 3 million to 4 million distressed homeowners, but it’s been a miserable failure,” he wrote.
That program, created by the Financial Stability Act of 2009, was intended to lower monthly mortgage payments for homeowners who have a financial hardship and are delinquent or in danger of falling behind. The lower payments are calculated at 31 percent of the homeowners’ verified pre-tax income.
Shilling writes that through December 2011, 1.8 million HAMP trial modifications had been initiated, but the monthly pace of new modifications is dropping continually. Shilling is also critical that only 43 percent of the HAMP trial modifications, or 762,839, made it to permanent status.
“Nevertheless, the administration still has hope for the program and has extended it through December 2012,” Shilling writes.
However, the Department of Housing and Urban Development’s (HUD) January scorecard indicates that more than 930,000 homeowners have received a HAMP permanent modification to date, saving an estimated $10.5 billion in monthly mortgage payments.
After six months in the program, more than 94 percent of homeowners remain in their permanent modification, the report states. The scorecard also reports that 84 percent of homeowners entering HAMP in the past 18 months received a permanent modification, with an average trial period.
Whether or not the federal housing program is helping enough homeowners, rental prices continue to edge up. The rent component of the consumer price index is rising, up 0.2 percent from January, and up by 2.4 percent from 12 months ago, the Bureau of Labor Statistics reported Feb. 17.
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