In the first half of this year, borrowers defaulted on modified mortgages at rates higher than almost every estimate. According to the Office of Comptroller of the Currency statistics released today, 36% of borrowers who had their loans modified in the first two quarters of 2008 re-defaulted after just 3 months. After six months, the redefault rate was roughly 56%. After eight months, 58% of borrowers re-defaulted.

Clearly, something is very wrong with the modified mortgage programs. The homeowners still can’t afford them. But, I’m guessing mortgage brokers et al are once again making money yet again by issuing more toxic loans.

Robert Reich asks, Are we courting a populist backlash?

It wouldn’t surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three — at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse — and conclude that a fundamental principle of fairness is being violated.

You can add to that list anyone receiving a public pension in a state where the pension is guaranteed. Here in California, public pension fund CalPERS has managed to lose $81bn in just over a year, and are down 31%. Their response to this crisis has been both comatose and arrogant. But then, the state is required by law to fully fund all pensions so it doesn’t really matter if they are incompetent.

But California is in the middle of a huge budget crisis already, even without the dimbulbs at CalPERS making things worse. Expect outrage and rising protest from broke Californians who will be saying, no to full funding of the pensions. In my opinion, CalPERS executives need to get on the clue train quickly, before they need round the clock bodyguards. No, I don’t want that to happen. Not even slightly. But it easily could.

These Americans aren’t revolutionaries. To the contrary, they’re deeply conservative. They’ve worked hard, but their hard work hasn’t paid off. Some have tried to save, only to see their savings disappear. They’re worried about the future and about their kids’ futures. They never expected anything like this.

This is the angry soil in which populist backlashes can take root.

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Even among upper-income buyers, 54.4 percent of blacks and 48.9 percent of Hispanics used high-cost loans. By contrast, just 16.4 percent of higher-income white buyers received such loans.

Were the mortgage agents overtly racist? No, probably not. But this does imply a systemic bias against people of color that resulted in them only being offered expensive mortgages. Else how to explain that upper-income people of color (who presumably weren’t buying  in dicey areas and who have financial resources)  had virtually the same percentage of high cost loans as did low-income people of color?

Notices of default jumped 45.4% in California in December compared to November.

“We have yet to see the real impact from the ARM resets,” [said a company that tracks California foreclosures.]

That is genuinely scary.

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