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.


Little Hope for Reform in Foreclosure Settlement Negotiations

New OrlFannie and Freddieeans The industry spins the numbers differently each month.  Foreclosures are rising, but somehow housing markets are being revived by refinancing.  Little of it makes sense and often the information is contradictory, but the bottom line is that housing is still in dire straits across the country.  The home mortgage modification program has been a huge and unmitigated failure noted by almost no one but the millions of homeowners who have hoped and then frustratingly lost their homes or are still hanging out in limbo.

A small glimmer of hope had been offered by the lawsuit filed against banks and mortgage servicers by a small army of state attorneys general.  Today’s Wall Street Journal reported on the progress of the discussions including the government’s proposal for a $20 billion dollar hit.

Under the administration’s proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. The settlement proposal focuses on pushing servicers who mishandled foreclosure procedures to eat losses, by writing down loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms.

Bank executives say principal cuts don’t necessarily improve payment patterns, and have told other parties involved in the talks that principal reductions could raise new complications. First, it will be difficult to determine who gets reductions and who doesn’t. And even if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited, one of these people said.

If a single settlement can’t be reached, different federal agencies could seek smaller penalties through regular enforcement channels, and banks could face the prospect of separate civil actions from state attorneys general.”

$20 Billion is a nice number for a penalty, but reading the bankers’ whines between the lines, we can already tell that this will be a very sloooowww and drug out process, not the least of which will involve coming up with the assessment on home value and writedown amounts.  There is no way to read the various arguments that bankers are making without seeing them as trial balloons they are letting go to see if any work.  Furthermore the notion of multiple settlements with different federal agencies meting out different penalties sounds like pure and simple chaos, and certainly nothing that will help homeowners.

Hope springs eternal, as the saying goes, so keep fingers crossed, but this early preview indicates that any hope for a happy ending here seems unlikely in another horror show feature.