Can Obama’s new housing plan succeed?

President Obama announced recently that he has a new plan to assist struggling homeowners whose homes are facing foreclosure. The plan would entail expansion of a mortgage refinancing program for homeowners whose homes are worth less than the what they owe the bank. The program if pushed aggressively could reach as many as on million homeowners.

The new program is officially a program of the Federal Housing Finance Authority (FHFA). Under the revision, there’s no limit to how much a borrower can owe. Banks that refinance loans will be largely cleared of liability according to interim director Edward DeMarco. “We know that there are many homeowners who are eligible to refinance under HARP, and those are the borrowers we want to reach,” DeMarco said.

Fees will be especially reduced if borrowers take on a mortgage with duration of 20 years or less. Many homeowners have 30-year mortgages. Only borrowers whose loans are owned or guaranteed by Fannie Mae and Freddie Mac will be eligible. In addition, borrowers must not have missed any payments in the past year and must have taken out their loans before June 1, 2009, though exactly when will depend on the lender.

Fannie Mae and Freddie Mac generally require refinancing lenders to assume responsibility for any problems with the original mortgage because in giving the new mortgage they are relying in part on that original documentation. That has made lenders reluctant to refinance loans for which they are not already responsible. That provision will now be waived, in exchange for a fee.

The program is not expected to increase costs for taxpayers though some borrowers might not be able to enroll until the first quarter of next year.

But regardless of the proposed benefits of the new plan, many critics of the new plan say it is too little too late. Many oppose federal aid for distressed homeowners as a bailout for people who they say made bad choices. Moreover, the opponents of the plan say that the market should be allowed to fix itself. And that even if it helped some, it will only help a small amount of the effected population and put in barely a dent in the over economy.

The impact to the overall economy would be small because as we all know the US economy is primarily driven by consumer spending. Critics of Obama’s new plan say that the saving to individual homeowners would be only about $2,500 per year, per household. That amount, they say if spent in the US economy would be small compared to the US trillion economy.

There are limitations to the new plan. For example it only applies to loans that Fannie and Freddie acquired before May 31, 2009. Also, it does not reduce the amount that borrowers owe. And only borrowers with less than 20 percent equity in their homes are eligible. If your home happens to be one of the lucky ones with more than 20 percent equity then you would have to go through standard more conventional channels to refinance.
The new Obama plan is a step in the right direction. No it does not solve all the problems in the economy but its a first step. It would be a great step for the one million home owners who they say it can. That would be one million less houses sold on the court house steps. And as for the savings that each individual homeowner would receive that’s all a net positive. Although the critics say the plan only would save families approximately $2,500 per month, they don’t realize that every dollar to a struggling homeowner could be the difference between foreclosure and not foreclosure.

But the new plan still does not go far enough. Since many of the homes in the US are underwater the new plan should include writing down or reducing the principle owed to the banks as well. Yes, there has been a great push back by the banks who say that their investors would not agree to such a move. However, it would be the best way forward. And, if the housing market rebounds and the equity returns, maybe then a portions should be returned to the banks. It just seems like the banks do not want to take any responsibility for the housing crisis, or the bad loans that really prayed on the unsuspecting or the over leveraging that they encouraged by their lending practices.

Lastly, Obama’s new plan should cast a wider net. Not only loans by Fannie and Freddie acquired before May 31, 2009 should be considered. There are millions of loan that are handled and service be company’s other than Fannie and Freddie Mac. Those loans should be included too and regardless of the amount of equity. If goal is to make an impact on the housing market and thereby the economy as whole, then the approach should be large in scope and aggressive enough to make a difference even if the target number is off by ten or even twenty percent.

Mr. Obama’s critics are going to criticize him what ever plan he comes up with whether it’s too be or too small. With a larger plan designed to write down principle balances and effect more homeowners his critics and supporters will know that he just didn’t deal with the housing crisis gingerly but that his plan was large in it’s impact and aggressive.


By William Simms
info@ehomeassistance.com