Rope is Not a Lifeline for Millions of Underwater Homes

New OrleanObama_Foreclosure_plans Even though many economists are forcefully arguing that we cannot get out of this recession unless we finally realistically and aggressively address the home mortgage and foreclosure crises, President Obama through executive fiat continued down the same path that has been such an abysmal failure thus far.  The program the President announced would allow homeowners in some cases to refinance their homes, despite being underwater (owing more than the home is currently worth) in order to escape paying interest rates of 6 or 7% when prevailing rates are currently around 4%.  Some, but not all, fee requirements would be reduced or waived, like appraisals, and the best hope expressed by various Administration spokespeople is that possibly this might help 1 million of the 14 million American homeowners who are underwater.

It’s something, I guess, but it’s not much, and it certainly doesn’t address the real crises for families facing foreclosures or the desperate shape of the home housing market.  In fact all of the flaws in the existing programs that have been terrible failures are carried forward in this latest “initiative.”

The program is based once again on a “voluntary” set of agreements with banks.  The mortgages under discussion would all be Freddie Mac and Fannie Mae qualified.  The loans would all have to predate a fixed date in 2009.  The last six payments for potentially eligible refinancers would have to have been paid timely and successfully.

The new program, like all of the old programs, continues to be a boon for the bankers and mortgage holders because once again nothing is being done to right size the outstanding market value of the home with the stated value of the original mortgage amounts.  For some people this new program might save them some money on their monthly payment, but may not change the fact that the homeowners might be crazy to continue to make payments on a home that will never recover the original loan value in their lifetimes.

HUD and the President’s continual unwillingness to facedown the bankers and reduce the outstanding balances in order to bring mortgages holders back to dry land from the underwater deep sea where so many sit especially in Florida, Arizona, Nevada, and other areas where real estate values have totally tanked.  This program continues to look, feel, and taste like a bank bailout footnote, rather than a homeowner relief effort.  Banks are still trying to pretend their portfolio is intact despite all of the evidence to the contrary.  The Administration has become codependent on this crazy strategy by encouraging refinancing at false values to help the banks and allowing them to make some fees, even though less, on the deal.

This is a rope for homeowners, not a lifeline, and without reconciling loan amounts to real values; it could be a hanging noose rather than any kind of salvation.  Eventually someone somewhere in this Administration is going to have to give homeowners and their beleaguered communities some relief by embracing reality rather than continuing to finance the pre-recession fantasy.

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