Who does this new housing program help?

Yesterday, the Obama administration rolled out a revamped program to help homeowners stave off foreclosures, clearly yearning to provide a game-changer for their record on the economy. However, when an Obama cheerleader like Mark Zandi only calls it a “single .. not a home run” and a “small step,” then a closer look at the details is in order. CNBC’s Diana Olick does just that and discovers that the new program won’t help anyone who has actually fallen behind on their mortgage:

This plan is for current borrowers who want to get a lower monthly payment through a lower mortgage rate. Yes, it’s the first plan that “rewards positive behavior,” says Florida attorney and mortgage expert Shari Olefson, but it doesn’t do anything for the now 6 million plus borrowers who are either behind on their mortgage payments or already in the foreclosure process. It also does nothing about all those foreclosed properties sitting on the books of Fannie, Freddie, the FHA and the big banks that still need to be sold and right now can only be sold at below-market prices. This plan does nothing to stop the bleeding in home prices.

Don’t get me wrong, it may make about a million and a half borrowers feel better about making monthly payments on an investment that will never show any return. It may stop some from walking away from their homes and mortgages. “It takes the sting out of it,” one underwater borrower told me today, but it doesn’t change the value of his home.

“Unless we fix the negative equity problem, we’re going to refinance all folks into lower rate mortgage, but fast forward a year or so from now and they’re going to sit back at their dining room table and say, look I’m still underwater, and we may see defaults again,” says Olefson.

Olick took a stronger position on it just a few hours later on CNBC:

In other words, this is exactly the same kind of Cash for Clunkers approach that Barack Obama has taken with economic policy all along, He will spend tens of billions of dollars to play the string out a little longer without actually changing conditions in the market. Houses will still be underwater, thanks to a lack of qualified buyers, and the only people who will get re-fi help are going to be those who are still making their payments on time and who won’t get foreclosed anyway.

So this new program will be of limited value to an even more limited number of people. US News says the program will mainly benefit one household — the White House-hold:

HARP went into effect in the spring of 2009, with the expectation of helping 4 million to 5 million troubled homeowners refinance their mortgages. Thus far, fewer than 1 million have done so. While the pool of eligible borrowers will no longer be limited by diminished home values, HARP refinancing will still only be available to people who are current on their mortgage payments and who have had no more than one late payment in the last year. “There’s a class of homeowners that are severely underwater that are current on their payments that this will help,” says Morris Davis, academic director of the James A. Graaskamp Center for Real Estate at the University of Wisconsin-Madison, but that’s a small group. “I don’t think this is going to help many people,” he adds. …

“It’s not nothing,” says LeBas, but he also points out that “not everybody, of course, will pay attention.” Even if all newly eligible homeowners did pay attention, the potential macroeconomic boost from the policy could still be minimal. LeBas says that the average home loan is around $350,000, and a decrease in interest from 4.5 percent to 3.5 percent would mean monthly payment savings of roughly $200. In the unlikely event that all 220,000 eligible homeowners decide to take advantage of the new rules, the annual boost in savings would be roughly $530 million dollars–pocket change compared to $10 trillion in U.S. annual consumer spending. …

The program is also clearly designed to make a difference for President Obama himself. The new rules are a part of economic initiatives the administration is billing under the tagline “We Can’t Wait.”

Well, so were Cash for Clunkers and the homebuyer tax credits. How well did they work out? Even Austan Goolsbee admitted that they were mistakes, gimmicky policies that attempted to move up expected growth that never arrived at all. We’re about to spend $50 billion rather than $3 billion to re-fi mortgages for the people who aren’t in danger of losing their homes, but just anxious about owing more than the market value of their houses. This won’t address the real source of that anxiety, and until the Obama administration pulls back on regulation and its gimmicky economic policies to create jobs and qualified home buyers, we won’t fix the housing markets at all. This only extends the uncertainty and the national debt.

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