Every time the government offers help to the homeowner or his lender, the people who President Obama is wont to say -- those playing by the rules -- get screwed.
What we have here folks is a situation where the government bugs out and let market forces runs its natural course. The housing market might not right itself to pre-housing-market-collapse prices until 2015. Yes, that means millions will lose their homes. But, the option of renting is by no means a death sentence as was the case of health reform legislation where doing nothing was not a viable option.
Today the White House announced more plans to ostensibly help struggling homeowners from drowning in underwater loans in which they owe more than their house is worth. Go figure that the lenders -- the banks -- are the real beneficiaries and not the borrowers.
And get this: They have the audacity to claim it won't cost taxpayers which is a crock of dog feces. Among the gimmicks is the Federal Housing Administration guaranteeing certain loans, an agency, by the way, quickly going bankrupt with an avalanche of new foreclosures in the pipeline.
And, another: Banks which took over failed banks are guaranteed by the Federal Deposit Insurance Corp. up to 85% of the original loan value from the original bank. That means it is more profitable for the new bank to foreclose on the devalued property than modifying terms of the loans to lower monthly payments, reduce interest rates or as now being proposed reduce principle.
Home ownership is the American dream strongly encouraged by the government by providing tax write-offs on mortgage interest rates and works swimmingly as long as market prices appreciate over the years. The housing market collapse in 2007-2008 popped that dream. For how long is anyone's guess.
That's my rant and I'm sticking with it.
Meanwhile, here is some crumbs the government is throwing at the problem because of political pressure from Congress and drowning homeowners.
-- $14 billion to FHA from the $75 billion borrowed funds in Obama's foreclosure-prevention program passed last year to high risk underwater borrowers who have not defaulted on their monthly payments.
-- Reduce monthly payments for unemployed homeowners for up to six months.
-- Would enable the borrowers' existing mortgage companies to receive incentives to lower their principal on underwater customers.
"There's no intention here of tackling what may be 10 to 12 million foreclosures over the course of the next three years," said Diana Farrell, a White House economic adviser.
The new steps by the administration amount to an acknowledgment that the year-old Home Affordable Modification Program. hasn't done enough. By the end of December, it had permanently lowered monthly payments for only about 170,000 borrowers out of the expected 3 million to 4 million it was aimed at covering through 2012.
This was reflected during Congressional hearings yesterday as reported by The Los Angeles Times.
At a House hearing Thursday, frustrated Democrats and Republicans labeled the program a bust so far, echoing a stinging report this week by a government watchdog.
"This program is a failure and a waste of taxpayer dollars," said Rep. Patrick T. McHenry (R-North Carolina.).
Rep. Edolphus Towns (D-New York), chairman of the House Oversight and Government Reform Committee, warned the administration it needed to act quickly to fix the program. "I really do believe we can do a whole lot better than what we're doing to keep people in their homes," he said.
Assistant Treasury Secretary Herbert M. Allison admitted that modifying mortgages has been more difficult than officials had anticipated. "Certainly we've seen a lot of frustration with this program since its inception," he told lawmakers. "We did not fully envision the challenges we would encounter."
At least someone in the administration got it right.
Many analysts believe the problem of negative equity -- about a quarter of U.S. homeowners with mortgages owe more than their homes are worth -- will make it difficult for modifications to succeed because even a slight economic setback could cause those borrowers to abandon their loans and homes.
"This is a 'kick the can down the road' action at best," Chief Executive Officer Dennis Santiago of Risk International of Torrance, Calif., told the Times.. "Yes, it will keep people in their homes longer. However, there remain no provisions for relief of the debt."
For homeowners caught in this Catch 22 vice, the Washington Post offers some questions and answers that I found of value. Here are a few:
I have a second mortgage. Will that complicate my chances of refinancing into an FHA loan under this program?
The FHA will allow the refinancing of the first mortgage only. If there is a second mortgage, the two loans combined cannot exceed the current value of the home by more than 15 percent once the first loan is refinanced.
Will refinancing into an FHA loan this way hurt my credit score?
Probably. It is likely to hurt your credit score because the total balance of the loan was not paid off.
I am underwater on a mortgage but have become delinquent on the payments. Will there be any help for me?
Maybe. The government effort also includes paying lenders if they lower underwater borrowers' loan balances under the Making Home Affordable loan-modification program. Lenders will have some flexibility on whether to grant principal forgiveness, so it is not likely to be done across the board. Also, borrowers must owe at least 15 percent more than their home is worth to qualify.
No. If you are still current on payments when this new program kicks in, lenders will be required to retroactively consider reducing the mortgage balance by the same amount that would have been forgiven under the new approach.
Will this plan require new taxpayer funding?
No. The initiatives will be funded out of the $50 billion in bailout money that was set aside to deal with foreclosure prevention, administration officials said.