Thursday, February 19, 2009

A Man With a Plan

Obama's "mortgage rescue" plan is out.

The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowers’ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrower’s income, with government sharing the cost to further cut the rate to 31 percent.

Treasury will share the cost when lenders reduce monthly payments by forgiving a portion of the borrower’s mortgage balance, the government said. The program may help as many as 4 million borrowers, the administration said. The average borrower’s home value could be stabilized against a price decline by up to $6,000, the White House fact sheet said.

‘Aimed at Homeowners’

“We think it is accurately aimed at homeowners at risk that are most likely to represent avoidable foreclosures, so it is likely to have a maximum impact where the dollar is committed,” said Robert Davis, executive vice president of the American Bankers Association, in a telephone interview.

Banks accepting help from the government must adopt loan modification plans, the government said.

Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan.

Mortgage servicers will get $500 and loan holders $1,500 to modify agreements as an incentive for the industry to seek out borrowers at risk of falling behind on their payments.

“The Obama team is betting that if they can afford to stay in the home month-to-month, that borrower is not concerned about what today’s value of the home happens to be,” Howard Glaser, former counsel to the secretary of the U.S. Department of Housing and Urban Development, said today in a telephone interview. “I think that’s the right bet.”

Mortgage Principal

Focusing on reducing the mortgage principal would have been a “prohibitively expensive proposition,” said Glaser, a Washington-based mortgage-industry analyst.

Treasury will increase the size of Fannie and Freddie’s retained mortgage portfolios, to $900 billion, allowed under the preferred stock agreement included in the September federal takeover of the two mortgage-finance companies.

“It is an indication they are not looking at shuttering them to move their responsibilities elsewhere

I claim no great expertise in this. My practice focuses on consumer debt like credit cards, car loans and the like. However, I do see two problems with the above, namely the presence of the words "Fannie" and "Freddie" in any rescue plan. Apparently, they are not going away until doomsday.
The crash originated with over-inflated residential real estate prices and the explosive growth of lender balance sheets. Obama's "plan" promises more of the same. Also, there appears to be no distinction made between people in foreclosure because they lost their jobs, and people in foreclosure because they lied on their loan applications and now owe more than they could have ever expected to pay back.
Finally, I have to wonder about how useful this can be for those being "helped." Yeah, they won't have to leave the homes that, truthfully, they can't afford. But, they are also going to be imprisoned in those homes until they pay off their mortgage. Foreclosure at least gets them out of there, and into something they can better afford.
My clients can get in over their heads with relatively low levels of debt, but once they do, they would be paying the bank back forever unless they do a BK, or get sued and reach some sort of settlement. You have to exchange the short term pain of a debt workout for the long term benefit of getting out from under the crushing weight of compund interest on the TV you bought 2 years ago. This plan short circuits this process for no better reason than some people seem to think BK's and foreclosures are "unfair" or "racist."
Making poor people into debt slaves; it's hard to see the "compassion" at work here.

Here's a slightly profance rant calling the plan BS! More Fraud Coverup! - from a guy who has been more right than wrong the last few months.

Here's an article from the W$J about some Americans, who are underwater but ineligible and are getting riled up but, honestly, Dems could care less about these folks.

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