The news media has been brimming with one Obamannoucement after another the past few days. Apparently after dodging the issue the people are most concerned about thus far, it has finally dawned on him just before election day that it's all about the 'JOBS'. Faced with the very real prospect of losing both the House AND the Senate, Barry has decided it's time to 'deal with the issues'. As his party stalwarts will tell him, a day late and a trillion sort.
So we get another BIG announcement tomorrow of the new 'short refinance program', dubbed 'the most ambitious effort yet at reducing mortgage balances for upside-down homeowners'. This program will target homeowners who are current on their mortgage but are 'at risk of default' because they have no equity. Banks and creditors are being encouraged to 'write down mortgages to less than the value of the property and then hand off the loan to the government.' Say what? The only thing we don't know yet is what asinine acronym this loser will carry - TARP, HARP, HAMP & HAFA have all been tried and found wanting.
This program is starting out with the deck stacked against it from the outset and administration officials are already cautioning that 'it won't be a panacea'. No shit. Let's count the ways.
- It doesn't apply to loans held by Fannie or Freddie. That means more than half the $10 trillion in first mortgage debt out there is already out of the running. They say this is to 'avoid big up-front losses'. But they've already borrowed $14 billion from the TARP program to cover anticipated losses in this new program. So whether the losses are up-front or back-loaded it's all semantics - you and I still pay.
- For it to succeed, banks must be willing to write-down both 1st and 2nd mortgages THAT ARE CURRENT, something they have been pretty reluctant to do so far. The program calls for 2nd liens to be written down so that total mortgage debt is less than 115% of the homes value. Hmmm, they're already way behind on trustee sales for fear of taking the markdowns and 2nd's would rather throw you under the bus than make a deal happen, - They're going to want to do this why?
- Mortgage servicers are already overwhelmed. They're already inundated with problem loans going south, they can't figure out how to modify them under the current HAMP program and it takes them months and months to make a decision on a short sale where they already have all the data in hand along with a cash offer. This program will streamline that how?
- Officials claim this program will help anywhere from 500,000 to 1.5 million homeowners of underwater mortgages. That's about half as ambitious as the numbers they used to roll out HAMP (3 million). Yet less than half the people they claimed were qualified under HAMP actually tried to enroll (1.3 million) and less than half of those actually got a loan mod (600,000?), and nearly 1/3 of those that did have already fallen delinquent again. This program will be more successful because?
- Some borrowers who might otherwise benefit might be discouraged because receiving a principle reduction shows up on your credit report. So your home might get more affordable but everything else will cost you more. That makes sense how?
- Of the lenders/investors who might otherwise participate some won't be able to because a stipulation in their loan contract specifies they can modify a loan ONLY if there is an 'imminent risk of default' or already defaulted. Yet this program specifically targets those who are NOT in imminent danger - but rather those who may face problems in 3 or 5 years if and when their interest rate resets, or if they lose their job, or if they get a divorce. And which harried bureaucrat will make the decision as to who's danger is imminent and who's isn't?
Well, no doubt there will be a few success stories that filter out down the road to justify the billions of your & my money they are spending. Of course it doesn't resolve the issues at the heart of the crisis (jobs), or why people are again growing reluctant to invest in our society (trust). It does manage to interject government meddling into yet another facet of the market and it will further delay the final reckoning for many - which will only serve to delay the true bottom & recovery of the market. If I was cynical, I'd say this is just another attempt to divert attention from other failed programs and capture the attention of the ignorant just before election day. Good thing I'm not.
But please, the 2/3rds of you who aren't upside down, please keep making your payments on time. Our President has a whole list of people more deserving than you that need your money. Like those in 'imminent danger' of being upside down, or may become upside down, down the road or maybe just feel like walking away because they are upside down.Thank you.
Somewhere Jimmy Carter is smiling with all his big ole teefus. "I ain't the worst no more."
p.s. AR Gods - please don't feature this. It will only piss off the progressives who can't understand how housing and politics are linked. Thank you.