In Congressional testimony today, a mortgage market expert offered scathing criticism of the Obama administration's plan to help distressed homeowners, arguing that the plan is "destined to fail."
Speaking before the House Financial Services Committee, Laurie Goodman, senior managing director at Amherst Securities Group, blasted Obama's mortgage modification plan for failing to help struggling borrowers who owe more than their homes are worth.
According to a report issued last month by First American CoreLogic, nearly one in four American homeowners have what are referred to as "underwater mortgages." And about 40 percent of borrowers who took out home loans in 2006 are currently contending with negative equity, the report noted.
Goodman was adamant about the prevalence of the negative equity trap:
"The evidence is irrefutable. Negative equity is the most important predictor of default. When the borrower has negative equity, unemployment acts as one of the many possible catalysts, increasing the probability of default."
Amherst estimates that, unless the widely-criticized $75 billion Home Affordable Modification Program (HAMP) is reconfigured, approximately 7 million to 7.9 million homeowners who are late on their mortgages will eventually be forced out of their homes.
Here's more from Goodman:
"We are concerned that if policies continue to kick the can down the road -- working with a modification problem that does not address negative equity -- delinquencies will continue to spiral down with no end in sight"
READ Goodman's full testimony:
