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I came across a few interesting stories yesterday and this morning on the $275 billion plan President Barack Obama announced yesterday to help as many as nine million American homeowners refinance or avoid foreclosure.
Here’s a good rundown of the plan, from The New York Times:
The plan has three components. The first would help homeowners who are still current on their payments, but who are paying high interest rates and cannot refinance because they do not have enough equity in their homes, a problem afflicting growing numbers of people as housing values tumble.
A second component would assist about four million people who are at risk of losing their homes. It would provide incentives to lenders who alter the terms of loans to make them affordable for the troubled borrowers. A third component would try to increase the credit available for mortgages in general by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac.
But the plan is not a panacea, especially not in California. The first and third pieces will help in the state’s troubled housing market, but the second — low-cost refinancing options for people whose homes are losing value — only applies to mortgages that are less than $417,000.
From the San Francisco Chronicle:
“These refinances are all for mortgages that were originally issued by Fannie Mae and Freddie Mac,” said John Quigley, professor of economics, public policy and business at UC Berkeley. “The California housing market had higher prices and was more overheated, so a much smaller fraction of mortgages in California were through Fannie and Freddie and under the conforming limits.” Until a year ago, conforming mortgages were those less than $417,000. “That means homeowners in California will not be advantaged by this program as much as those in lower-cost areas.”
Here’s another look at some of the criticism in the state over the plan, from The Sun, in San Bernardino and the Inland Empire:
“Any modifications will help a small percentage of people, but I don’t think it’ll put a major dent in the mass number of foreclosures that I perceive are still coming,” said the real estate agent with the Mark and Al Team at Century 21 Masters in Glendora, which sells houses in San Bernardino County.
“Only a certain percentage of these mortgages will be saved, probably a smaller amount than we’d like to believe, because there are second and third loans behind these mortgages,” he added. “A lot of these properties’ homeowners have already abandoned, so at this point, they’re too far gone and not interested anymore.”
Along those lines, The NYT noted that administration officials admitted the plan doesn’t deal with second mortgages. Millions of people bought homes with piggy-back second or third mortgages to help minimize or eliminate the need for a down payment during the boom. So to get a loan modification, a borrower with two mortgages has to coordinate negotiations with two lenders, a very complicated task.
Local blogger and real estate broker Jim Klinge said the plan “won’t help many people around here.”
There are considerable stakes to any loan modification or foreclosure-avoidance program. I’ve written about some of those, notably many renters who fear government intervention will unnaturally keep prices at unaffordable levels in some places in San Diego.
The Associated Press tackled that controversy as part of its coverage yesterday, quoting one of our local mortgage experts (who was also quoted in the Union-Tribune’s coverage of the plan today):
Despite the inevitable backlash, consumer advocates and some in the real estate industry argue that it’s still in everyone’s best interest to avoid as many foreclosures as possible because they drag down the value of neighboring properties.
“It’s not a matter of fairness,” said Mark Goldman, a mortgage broker who lectures on real estate at San Diego State University. “It’s a matter of protecting the value of your property.”
I chatted with Goldman yesterday afternoon. He said he’s not sure how significant the plan will be in stemming foreclosure in California, especially in San Diego. But he did say he’s glad the presidential administration is acting quickly to do something.
“I’ve lost any kind of confidence that the people who are running the banks will take the right steps to reduce the bleeding and maybe even turn this thing around,” he said. “We in San Diego and California are among the worst hit for people losing their homes. And so any effort that can be promoted and implemented to slow the decline of values that result from foreclosures will help, I think.”
What do you think? Please comment below or send me your thoughts: firstname.lastname@example.org.