New Foreclosure Relief Program Lacking Property Valuation Standards - Result - More Value Declines
President Obama's new foreclosure relief program has been named, appropriately vaguely enough, the Making Home Affordable plan.
Which party, the lenders or the homeowners, are getting a more affordable home is debatable, but the plan is to spend another $75 billion to fix the housing crisis by covering up property values and lowering monthly mortgage payments.
Seventy-five billion dollars has been allocated to helping close to nine million homeowners fight foreclosure through either a refinancing plan or a mortgage modification.
This represents an average of over $8,000 the government will directly spend for each at-risk borrower, along with another $200 billion used to support Fannie Mae and Freddie Mac.
The plan leaves out a number of homeowners and borrowers who were instrumental in keeping the housing bubble inflating.
Second homes are not involved in the home.
Neither are jumbo mortgages.
And neither are those homeowners who own a primary residence but would be unable to document their incomes.
The final group that is left out is the most disturbing.
MSNMoney describes this segment of homeowners as "Those who owe so much more than their houses are worth that a lender would do better by foreclosing.
" Thus, lenders are still in charge of the foreclosure process and will keep taking homes from borrowers when it is a better deal for the bank.
With close to 10% of all loans on one- to four-unit properties at least one payment behind, Obama's mortgage relief plan will leave out a significant portion of the housing market.
And it is not that investors, speculators, and people who can not prove their incomes should receive help -- in fact, probably no homeowner should receive direct federal government help.
However, the point of all these government foreclosure relief plans has been to stabilize housing prices, reduce the number of properties facing foreclosure, and assist banks in working with borrowers.
Each plan has helped a small number of homeowners, and most have targeted only one group or another, while leaving other groups to fend for themselves.
But the housing boom was made up of investors, speculators, jumbo loans on inflated properties, and people who did not have to document their incomes to receive a mortgage.
Taking these groups out of the market (by raising lending standards and not relying on falsified appraisals) and not offering them federal government assistance will depress housing prices.
So the government is dealing with a very tricky situation in attempting to prop up housing prices and help responsible borrowers stay in their homes while simultaneously not offering assistance to the groups of borrowers most responsible for keeping the bubble inflated.
If these irresponsible groups are not given help, their foreclosures will lower property values.
Unfortunately, it seems as if the government does not know what the final goal is with all of these contradictory plans.
Should they encourage savings or spending? Prop up house prices or allow large numbers of borrowers to fail? Support competition and markets or bail out insolvent institutions? In trying to do all at once, the government is creating more uncertainty and the potential for more foreclosures and business failures.
Which party, the lenders or the homeowners, are getting a more affordable home is debatable, but the plan is to spend another $75 billion to fix the housing crisis by covering up property values and lowering monthly mortgage payments.
Seventy-five billion dollars has been allocated to helping close to nine million homeowners fight foreclosure through either a refinancing plan or a mortgage modification.
This represents an average of over $8,000 the government will directly spend for each at-risk borrower, along with another $200 billion used to support Fannie Mae and Freddie Mac.
The plan leaves out a number of homeowners and borrowers who were instrumental in keeping the housing bubble inflating.
Second homes are not involved in the home.
Neither are jumbo mortgages.
And neither are those homeowners who own a primary residence but would be unable to document their incomes.
The final group that is left out is the most disturbing.
MSNMoney describes this segment of homeowners as "Those who owe so much more than their houses are worth that a lender would do better by foreclosing.
" Thus, lenders are still in charge of the foreclosure process and will keep taking homes from borrowers when it is a better deal for the bank.
With close to 10% of all loans on one- to four-unit properties at least one payment behind, Obama's mortgage relief plan will leave out a significant portion of the housing market.
And it is not that investors, speculators, and people who can not prove their incomes should receive help -- in fact, probably no homeowner should receive direct federal government help.
However, the point of all these government foreclosure relief plans has been to stabilize housing prices, reduce the number of properties facing foreclosure, and assist banks in working with borrowers.
Each plan has helped a small number of homeowners, and most have targeted only one group or another, while leaving other groups to fend for themselves.
But the housing boom was made up of investors, speculators, jumbo loans on inflated properties, and people who did not have to document their incomes to receive a mortgage.
Taking these groups out of the market (by raising lending standards and not relying on falsified appraisals) and not offering them federal government assistance will depress housing prices.
So the government is dealing with a very tricky situation in attempting to prop up housing prices and help responsible borrowers stay in their homes while simultaneously not offering assistance to the groups of borrowers most responsible for keeping the bubble inflated.
If these irresponsible groups are not given help, their foreclosures will lower property values.
Unfortunately, it seems as if the government does not know what the final goal is with all of these contradictory plans.
Should they encourage savings or spending? Prop up house prices or allow large numbers of borrowers to fail? Support competition and markets or bail out insolvent institutions? In trying to do all at once, the government is creating more uncertainty and the potential for more foreclosures and business failures.
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