President Barack Obama’s latest proposal to help struggling homeowners—to be followed soon by a student debt initiative—isn’t likely to be much more successful than previous efforts. An analysis by MF Global’s Washington Research Group estimates the plan to make it easier for homeowners to refinance their mortgages will target just “600,000 to 1 million more refinancings of underwater borrowers. … For those who get HARP refinancings, this offers economic help. But we don’t see how this turbo charges the economy.”
If that analysis is accurate, this housing relief effort by the Obama White House won’t accomplish more than previous attempts. Back in early 2009, Obama promised to help “as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.” But just 816,000 homeowners have received permanent mortgage modification through federal housing programs.
That’s small potatoes. Tiny potatoes, really. According to CoreLogic, some 11 million, or nearly a quarter, of all residential properties are in negative equity. Another 2.4 million have less than five percent equity. More than 4 million mortgages are at least 90 days delinquent or in some stage of foreclosure, with another 3.4 million mortgages likely on their way during the next year, according to some analysts.
Sure, any little bits helps. But it’s hard not to conclude that this meager plan is little more than an effort in political theater, a campaign-season sop to worried middle-class voters and the Occupy Wall Street movement. Given the small scope of the housing plan, it’s likely that the student loan piece will be little more than a recycling of previous proposals. All in all, just enough to garner positive headlines but not so much as to scare taxpayers or bankers. Obama wants to be seen as compassionate yet fiscally responsible. A little bit OWS, a little bit Tea Party.
Perception is reality, you see.
And besides, WE CAN’T WAIT!
Nobody ever asks WTF the govt is doing trying to intervene on contracts, and personal financial decisions.
I watched a clown on Fox this morning, Hemmer, screeching about what are you going to do about this to Rep Blackburn. He kept conflating being underwater with foreclosure.
– The cash wagon is empty, so this is the best they can do. A faint shadow of the vote buying, house give-aways/student loans in the last campaign.
– Franks is probably thinking he better lay low while he’s still out of jail.
I wonder if this plan is as well-thought out as the rest of his plans? You know, shovel-ready and all of that.
Indeed. My brother is so far from being underwater on his mortgage that he could be in the financial equivalent of the mile-high club.
Didn’t stop the bank from putting him within a few days of default and possible foreclosure last year for missing mortgage payments because he was out of work. In fact he told me he knew a lot of people who were not only missing payments but were actually underwater — and the banks were leaving them alone.
Banks stand more of a chance of recovering value from the seizure and auction of an above-water property than the other kind.
OR: You can’t squeeze blood from a turnip.
For now. I’ve seen many instances where homeowners simply stopped making payments altogether, and the bank didn’t actually begin foreclosure proceedings until more than a year later – for one very good reason: they knew the foreclosure was inevitable, but didn’t want the house until local market conditions were more favorable. Banks will delay proceedings when the REO inventory is high, which depresses prices, sometimes severely, and foreclose on the property when the inventory dries up (and prices creep back up again) in order to minimize their loss. Besides, vacant houses are an invitation to theft and vandalism. Better to leave the current occupants there for the time being.
The housing debacle was caused by government tinkering with free market forces, and is not going to be solved by more government tinkering.
Artificially low interest rates, pressure to lower loan qualifications, and money down requirements being lowered changed the market from a low risk, long term investment, to a greed free for all.
Instead of being the biggest single investment a typical middle class family makes, with the expectation of ownership free and clear at retirement, and the hope future equity and improving finances will allow them to trade up at some point before then, buying property became a low risk short term speculative venture with the expectation of doubling your money in a year or two…and that it would go on indefinitely.
A 2001 family making $100,000/year would hesitate to buy a $180,000 home. In 2004 that same family making about the same money eagerly signed up for a $300,000 loan for the same home, with the expectation of it being a $400,000 home in 2006, and strategized whether to take a second out to pay the balloon payment in their ARM, buy that speedboat they’d been dreaming about, or flip it.
Now that family, still making the same amount or less, is stuck making big payments an a $300k loan for a house the bank tells them is worth $250k and the market shows them is worth $180k.
It sucks to be them, but it was their choice, and I, who didn’t buy a house I can’t afford, am totally unwilling to subsidize people living in $300k homes. It’s ‘cuz I’m not a commie. If we are to have a capitalist economy, risk cannot be removed. If risk is removed, it becomes a managed economy. There will still be winners and losers, it’s just the winners will be picked my the managers instead of the individuals choices.
Anything the government does to rescue people from sacrifice or bankruptcy will just be an attempt to prop up housing prices artificially, and the market will never recover unless and until it’s allowed to hit it’s natural level.
Also, it should not go without mention that when real estate hits it’s natural level, property tax revenue will be much lower.
Better the people take it in the shorts than the government…
Here is a conversation on video from Squawk one week ago, 10/17, titled Fixing the US Mortgage Market. A guy named Doug Daschille pushes a plan that resembles this Obama thing — though I’m uncertain how far, as to the details — beginning about 2:04min in. In any case, it looks to be the taxpayer who takes the loss, through the GSE’s or the Fed.
I suspect the reason so few mortgages were refinanced is because the people running these programs are utterly retarded. I went through the re-finance process when I was out of work for several months. First, you didn’t qualify for the refinance unless you were 3 months or more behind on your payments. I literally had to miss payments on purpose to qualify for the remodification. Idiotic, as then the banks are carrying delinquent accounts on their books and I wonder how many were delinquent only so t hey could qualify for the remodification. Then, the application process is ridiculous- not the forms themselves, which were not too bad, but the fact that the banks took forever to process the applications- I had to provide the same information (tax info, wage info) 6-7 times during the process (which took over 2 years) because they would sit on the application and were required to have updated financial information every 3 months. What I didn’t know is until I spent about 2 hours on the phone one day, was every time you provide the new information, the application goes back into the big pile, essentially re-starting the process from scratch (basically, losing your place in line). Then, of course, my bank sold my note to a “servicer” who turned out to be even worse than my original bank. I had to re-apply (after waiting around for 12 months with my prior bank), resubmit all the information, then wait for almost another year. I was getting default letters 3-4 times a month, even though I was in the refinance program. Finally, they granted the stupid thing – unfortunately, they sent me an acceptance letter, than threatened legal action because of my balance.
It was absurd. IMHO, the reason these modifications are not helping is because the system is being run and serviced by incompetents and as we know, any time the feds getting involved, productivity plummets.
– The banks have to do these by law. Did you think they wouldn’t obstruct as much as possible?
– Banks are hiding foreclosed properties from buyers. Gee, I wonder why.
We just did a refi, and it required more effort and paperwork than the original mortgage, through the exact same lender. Our broker said the feds are making the process horrible. And that was just a standard refi – not close to underwater, never late, etc ….
I think what we really need to stimulate housing sales is some sort of government deal where the government gives you money to destroy your inefficient houses built pre-1997. It will stimulate housing production.
I call my original idea “Cash to Trash”.