I find that the harder I work, the more luck I seem to have. - Thomas Jefferson

Rays of Mortgage Hope

by Hal_10000

Obama’s official mortgage plan is out.  And it’s ... not that bad.  You can tell by the people who are pissed off about it.

The Obama administration’s housing plan is intended to help 9 million struggling homeowners avoid foreclosure, but it leaves out tens of thousands of borrowers in the most battered housing markets who won’t qualify because their homes have lost too much value.

The program detailed Wednesday offers refinanced mortgages or modified loans with lower monthly payments. Yet its refinancing plan is limited to borrowers who owe up to 5 percent more than their home’s current value. Loan modifications, supported by $75 billion in federal funding, are unlikely for severely “underwater” borrowers.

In the California cities of Stockton, Modesto and Merced, more than one out of every 10 homeowners with a mortgage won’t qualify for any help because they owe more than 50 percent more than their house’s current value, according to data from real-estate Web site Zillow.com.

The plan doesn’t help homeowners in states “that are at the epicenter of the housing debacle,” said Greg McBride, a senior financial analyst at Bankrate.com.

The ineligible households are concentrated in California, Florida, Nevada and Arizona, but can also be found in struggling cities such as Detroit and Grand Rapids, Mich. Even houses in the outlying suburbs of the nation’s capital, where the economy is relatively healthy, have dropped substantially in value.

For a homeowner who borrowed $380,000 and now has a house worth $270,000, “I just don’t know what you do with that,” said Jared Martin, a mortgage broker in Bethesda, Md.

You either keep paying and the value rises again—or you default.  Same as always.

McArdle explains why federal loan modifications are better than private ones:

Many of the mortgage modifications have failed haven’t succeeded in reducing payments--they reduce the interest rate, but pile penalties and arrearages onto the principal, so that payments don’t drop much.  As far as I can tell, the Obama plan will result in actual payment reductions, which should reduce the pressure to default.

There’s also this provision, which liberals tend to hate.

For the modification program, which runs through 2012, borrowers who are eligible will have to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify. In the affidavit, applicants will have to cite the reasons behind their financial woes, such as job loss or a drop in income. The government will then take steps to verify the information.

Borrowers are only allowed to have their loans modified once, and the program applies for loans made on Jan. 1, 2009, or earlier. Mortgages for single-family properties that are worth more than $729,750 are excluded.

And I think it’s a good sign that people who want mortgage cramdowns also hate Obama’s proposal.

To be honest, a large part of me just wants to say, “screw ‘em” when it comes to people facing foreclosures.  My feeling is that we’re going to get the foreclosures sooner or later.  Our burning through $75 billion might cushion the blow.  But one way or another, housing prices are going to fall to their market values.  All the hope and change in the world is not going to change that reality.

Still, if the mortgage cramdown provision is gone, I feel like a patient who has just been told that instead of getting his entire leg amputated, he’s just going to lose a few toes.  I can live with this. although I’d prefer to see a long-term plan to eventually rid us of Fannie and Freddie.

In other “your cancer may not be that bad” type of good news, there’s hope that the GOP can stall the budget bill and possibly strip out some spending.

So.  Um.  Woo-hoo.

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