January, 26th 2012

Obama's "solution" re: housing

– Liz Mair

This is interesting, re: Obama's proposals outlined during the State of the Union on housing-- Brookings:

Since the president says the plan is for “responsible homeowners,” this presumably means that those who are delinquent on their mortgage payments are not eligible. (There are currently about 4.1 million delinquent loans, with approximately 1.8 million of these delinquent for 90 or more days.) This program is also not for borrowers who are current on their payments but have homes valued more than their homes are worth (“above water”), since such borrowers should be able to refinance without a new government program. And this program is not for those borrowers who are underwater and have a Federal Housing Authority (FHA) or Fannie Mae or Freddie Mac (F/F) backed loan, since they can refinance under the recently ramped-up Home Affordability Refinance Program (HARP) started by President Obama. Thus, this program will likely be targeted to underwater borrowers who are current on their mortgage payments and who have a mortgage that is not backed by the FHA or by F/F. 


It is important to note that reducing mortgage interest rates for underwater borrowers should only contribute mildly to foreclosure prevention. The key determinant of foreclosure is the cumulative loan-to-value ratio for the borrower, with a contributor factor being an inability to pay due to job loss. This program would not affect the loan-to-value ratio, as the amount of mortgage debt is unaffected by the refinancing. (This is why the administration’s previous plans to lower mortgage interest rates, through the Home Affordable Modification Program (HAMP), did not result in a substantial reduction in foreclosures.)

(emphasis mine)

So... the plan is objectionable to conservatives and libertarians because it a) raises taxes and b) allows banks that made risky loans to get them off their books and onto FHA's. And it won't actually deal with the fundamental problem with regard to housing anyway, and will apply to a teeny, tiny proportion of homeowners. And it will require new legislation.

That sounds like a policy of very limited utility that will never get implemented, especially not in a campaign year-- but one that makes for great campaign trail rhetoric. Surprise. [intro]


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