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  • Proposed Mortgage Refinance Plan Would Help Only a Few

    They are at it again. Despite numerous unsuccessful tries to develop a government-facilitated plan to refinance problem mortgages, another one appears to be on the horizon. This one, currently being considered by state and federal officials and large mortgage lenders, has a better focus than earlier versions, but would at best help only a small minority of those who have been promised assistance in the past.

    The good news is that it would focus on providing help for those who have continued to pay their mortgages on time, despite the fact that they owe more on their houses than the homes are now worth. However, as with the many previous attempts to assist at-risk homeowners, the devil will be in the details of how the program—if approved—is administered, which mortgages are eligible, and who would bear the cost. For instance, it appears that the program would apply only to loans that are owned by certain major banks, a limitation that would include only about 20 percent of mortgages.

    According to The Wall Street Journal, the plan would allow borrowers who are current on their mortgages but owe more than the house is worth to refinance their loans, despite having no equity. The offer was made to banks negotiating with both the federal government and the states to settle the banks’ liability for problems in their foreclosure processes. The cost of this plan would be paid by the banks as part of the damages they would owe for failure to follow proper legal procedures in foreclosures. This means that the program would be limited to mortgages owned by those banks and would not apply to the vast majority of mortgages that have been securitized by Fannie Mae and Freddie Mac and sold to investors. And, of course, its appeal to banks would depend on what else the governments include in the settlement.

    Those who developed the plan do get credit for focusing on homeowners who are current in their payments, rather than on those who either have intentionally stopped paying or simply don’t have the income to meet their mortgage obligations. As such, it avoids the moral hazard of previous proposals that appeared to reward those who acted irresponsibly while ignoring those who sacrificed to meet their obligations. While this approach would also seem to exclude borrowers who cannot pay their mortgages due to lost jobs or other circumstances beyond their control, the sad fact is that these homeowners would almost certainly not be able to repay a refinanced mortgage, either.

    If there is to be another effort to assist troubled mortgage holders, this proposal is better that previous attempts. However, context and details are everything. If the proposal is part of an unfair deal or is structured in an unrealistic way, then it will fail just as all of its predecessors have. It is important to keep in mind that it appears only a fairly small proportion of mortgages would be included.

    Of course, the biggest problem remains the continued government attempts to “fix” the mortgage mess. While many borrowers are having trouble through no fault of their own, it is simply not possible to refinance large numbers of mortgages all at once. Mortgages were made one at a time, and they must be refinanced the same way. This means that any refinancing program will unfold slowly and is very unlikely to help anyone in need of immediate assistance.

    While this proposal is better targeted than most, it is likely to be announced as a general solution rather than the limited program that it is. That means the hopes of many will again be raised, only to be dashed when the details are uncovered.

    Posted in Featured [slideshow_deploy]

    8 Responses to Proposed Mortgage Refinance Plan Would Help Only a Few

    1. Bobbie says:

      If the government proposed mortgage refinance plan would help only a few then it was designed that way and this favoritism must stop. this government and their proposals will eventually force responsible people not favored, on the government dole…

      people have to be held accountable to their own business and government has to stop interfering by protecting the irresponsible.

      the president could give back the jobs his rule collapsed.

      property taxing is unfair and uncalled for. we get police, firefighters and have to pay out of pocket for EMTs. we pay over $2000.00 for a small area and the population of home owners doesn't show the need for this expense or their nickel and dimeing of assessments regarding illusions, billed twice a year. certain all democrat run states are of the same mindset that complies to the nation wide government of feds that are focused on removing freedom one nickel and dime at a time following the President's example of no transparency, secrecy and cover-ups. The citizens benefiting must know what's going on behind the backs of the innocent!?

    2. Bill says:

      Why are houses underwater? The overwhelming reason is that people put little or nothing down. So, most of these people bought houses – their biggest investment – that they should not have. Suppose the guy next door with the same income, bought the same house, at the same time, and put 20% down. He gets no help because he did the right thing? Makes no sense. The fact is p[eople have to live somewhere and whether your house is worth more or less than the mortgage is irrelevant. Will it be worth more in the future – maybe? but why does anyone get a do-over?

    3. Bobbie says:

      that's okay, I'll comment the same another day when the heritage traitor isn't working!

    4. Bobbie says:

      another day!

    5. David F. Murray says:

      Disagree with Bill. Even if you put 20 % down, the value could have dropped 50 %. Buy for 400 K. Put 80K down. Value drops to 200K. You are under water . And because of Dodd- Frank, you may not be able to refinance to take advantage of lower rates. They have you over a barrel, and you can't sell, or get out. They are forcing short sales or foreclosures. Somebody has to get real.

      • Bugsdaddy says:

        Agreed David. I'm in that boat myself. I put 25% down when we bought a house in 2004. Since then the "comps have gone down in our area by 50%+. I am technically underwater, even though we continue to make all of our full payments. Our intent is to remain there the rest of our lives, this is where we will retire!
        Anyway, the real issue is the stupid regulations of Fannie Mae and (esp). Freddie Mac. When we financed our house (through Washington Mutual, now since taken over by Chase) the mortgage was subsequently backed through Freddie Mac. This happens with out the mortgagee's involvement, by the way, and as a result no one will touch us for a refinance because Freddie Mac is involved.
        Like HARP, HAMP and all the rest, this is a program that only provides window-dressing on the situation. The real issue is the stupid rules the so-called NGO's create and change on a daily basis to meet their whims and desires. This program would only reinforce and strengthen the bureaucratic ignorance of what should be a free market.

    6. Lloyd Scallan says:

      We must understand the reasons why the housing collapse we have today. During his administrations, Bush made several attempts to control Freddie, Fannie, Countrywide, and other lending institutions from manipulating deals to providing funding to those that could neither qualify for nor payback such funding. But James Johnson, Franklin Reins, Angelo Mozilo, and others, went on a public crusade condemning anyone as "racist" that would deny, primarily minorities, the right to live the "American Dream". Then this bunch went to Capital Hill, bought off Democrats such as Barney Frank. Chris Dodd and others, to publicly support and lie about what they knew was actually going to take place. Anyone that honestly wants to understand why the Obama administration is attempting to further destroy the housing market, take the time to go to the facts before Obama has a chance to put the final nail in the coffin.

    7. Jason says:

      I like the program….though I wish someone would just come out and actually be positive about something for once. This was close to positive, but the author chose to lament two conditions: 1. the program will only apply to a small percentage of mortgages (20%), and 2. The government needs to stop trying fix the mortgage mess, because "mortgages were made one a time, and they be refinanced the same way." Seems like multiple contradictions to me. Besides the obvious contradiction of complaining about a small program, and requiring it in the same article, how is 20% considered small? In the end, the author seems to miss the entire point. He posits that "the hopes of many will again be raised, only to be dashed when the details are uncovered." What he seems to be missing is not the root cause of the crisis, but why this crisis continues to linger. It has become a crisis of confidence. When/if confidence finally returns, many of our current issues will simply melt away, and the apocalypse crowd will be left gasping for air (not to mention credibility).

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