What the Obama housing plan will and won't do

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http://seattlepi.nwsource.com/money/400948_real21.html

Last updated February 20, 2009 9:37 p.m. PT

What the Obama housing plan will and won't do

By HOLDEN LEWISBANKRATE.COM

President Barack Obama introduced a $75 billion homeowner relief program this week. Who will it help?

Two sets of homeowners will be eligible to get help under the Obama administration's foreclosure-prevention plan:

People who got plain-vanilla conforming mortgages and who have never fallen seriously behind on the monthly payments might qualify to refinance at lower interest rates -- even if they owe as much as the house is worth.

And people who have subprime mortgages or exotic loans, such as pay-option adjustable rate mortgages, might qualify to keep their current loans, but have them modified to make the payments more affordable.

"The plan I'm announcing focuses on rescuing families who played by the rules and acted responsibly," Obama said, announcing the Homeowner Affordability and Stability Plan, or HASP. He explained this would be done by "refinancing loans for millions of families in traditional mortgages who are underwater or close to it, by modifying loans for families stuck in subprime mortgages they can't afford as a result of skyrocketing interest rates or personal misfortune, and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments."

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Very few people played by the rules and acted responsibly.

1) If they owe as much as the house is worth, they deserve what they get. Did they think real estate would continue to sky-rocket in value when the prospects for the economy were so poor. Leading economic indicators were pointing toward this Depression for the past decade. I should not have to pay my tax dollars to bail these people out because they were too unintelligent to understand the most basic economics.

2) As long as I can remember (and so this is maybe going back 35 years), I have heard people on investment programs (radio and TV) and read in business magazines, and in the business sections of newspapers that people who have subprime mortgages or exotic loans, such as pay-option adjustable rate mortgages were digging themselves in a hole and exchanging short term payoffs for long term bills. These people do not deserve to be bailed out either. The information was out there. It's not my fault they didn't hear it or ignored it.

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The Obama administration estimates that HASP will help 7 million to 9 million families avoid hardship or foreclosure. But many won't be eligible to get help because of the limitations and exceptions in the plan.

Probably the biggest hole in HASP is that it won't help many people where house prices have fallen most: California, South Florida, Las Vegas and Phoenix. A lot of these people won't be eligible for refinancing because they owe much more than their houses are worth.

Another gap in the plan: It provides a path to refinancing for people whose loans were securitized by Fannie Mae or Freddie Mac. Millions of homeowners have mortgages that were securitized, but not by Fannie Mae or Freddie Mac. They might find it difficult to refinance, whereas their neighbors who got similar loans securitized by Fannie or Freddie might have an easier time qualifying for refinancing. Most borrowers won't know if they have a Fannie or Freddie loan until they ask the servicer.

The administration has set for itself a March 4 deadline for getting the refinancing and modification programs rolling. The plan has two main pieces: refinances for conforming loans, and modifications for subprime and exotic loans. The refinance piece is designed to help 4 million to 5 million "responsible homeowners."

That last requirement effectively imposes a limit on loan amounts. Few mortgages for more than $417,000 will qualify for refinances because that is the conforming limit.