Tuesday, October 25, 2011

Obama's "Improved" Home Affordable Refinancing Plan

Yesterday, in Las Vegas, definitely ground zero of the mortgage disaster, President Obama unveiled what he wanted you to believe was some kind of new plan to save the housing market. Actually, its a reiteration of an already-failed program called HARP (Home Affordable Refinancing Plan). The only difference, now, from the old HARP is that that you can refinance your home; no matter how upside down you are on your mortgage. Previously you could only refinance up to 125% of your home's value. Now, someone can get refinancing even if they are 250% upside down on their mortgage; and, in Las Vegas, many who bought homes in 2006 and early 2007 are just that far underwater.

So, will this program stem foreclosures or help home prices improve? In theory, not really. The old program didn't and this one won't either. It's a refinancing plan; plain and simple. It's intended to give existing homeowners who are current on their mortgage payments and who already have Freddie Mac or Fannie Mae backed mortgages, a chance to refinance their homes at the existing lower interest rates; thus giving people some extra money in their pockets to spend on the economy. So, in essence, its really a backdoor stimulus package that puts all the risk on Freddie Mac and Fannie Mae; two Government Sponsored Enterprises (GSE's) that are already mega-billions in debt.

Like everything that Obama does, it addresses the symptom of the problem and not the cause. The only reason why homeowners are upside down on their mortgages is because home prices have fallen below the equity level that those owners have in their homes. The falling home prices are due to the massive amount of foreclosures and a stalled real estate market and not because people can't refinance their loans.

First and foremost, most of today's foreclosures are a direct result of someone losing their job. While refinancing with lower monthly payments might keep someone in their home a little longer, the possibility of foreclosure is probably inevitable without an improved job market. Secondly, even after refinancing, the homeowners will still be underwater and locked into living in that home for a very long time; thus furthering a stalled housing market and the possibility that home prices will start to rise.

Back in February of 2009, I wrote a rather lengthy blog entry on Obama's original HARP. While Obama promised to save 9 million upside down mortgages under his program, I concluded the following: "...my bet is still that we will only see the maximum of 1-1/2 million mortgages being saved by his plan." In reality Obama's original mortgage modification program has only impacted around 800,000 mortgages. Is there any reason to believe that this "improved" plan will do any better? I don't think so. This is just some more of Obama's campaign B.S. and a lot dumb people will probably fall for it.