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Saturday, Feb. 21, 2009 | 2 a.m.
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- Expert: Foreclosures to dominate real estate in 2009 (2-20-2009)
- Stimulus slice doesn’t sit well with lawmakers (2-19-2009)
- Realtors’ numbers show need for stimulus (2-13-2009)
Sun Coverage
President Barack Obama’s housing recovery plan landed with a thud this week as skeptics in Southern Nevada doubted it offered much help to a region where more homeowners are upside down on their mortgages than anywhere in the nation.
But in an interview with the Las Vegas Sun, the Obama administration’s secretary of Housing and Urban Development, Shaun Donovan, said that as details of the plan emerge, mortgage lenders and struggling homeowners will find that those initial perceptions are wrong.
The plan’s two-pronged approach was designed specifically to help Las Vegas and other hard-hit areas, Donovan said.
The most distressed borrowers in Nevada will benefit widely because the $75 billion in federal aid goes mainly to states whose homeowners need it most, Donovan’s agency says.
As Nevada’s anxious homeowners await the March 4 details, here is a more thorough look at the plan Obama released Wednesday, based on the interview with Donovan and subsequent reporting:
First, think of Obama’s Homeowner Affordability and Stability Plan as two somewhat separate parts.
The first part is for homeowners who are not behind on their payments but want to refinance at today’s historically low interest rates.
The second part is for homeowners in such distress that they are in “imminent danger” of foreclosure. This second part is the heart of the plan, for its primary purpose is to stanch the bleeding.
The first part works like this:
Many homeowners who want to tap into today’s low interest rates have been unable to do so because their loans are held by mortgage giants Fannie Mae or Freddie Mac, which have a 20 percent equity requirement.
These homeowners may be capable of making their payments, but simply want access to the cheaper rates that would give them a few hundred extra dollars a month.
But home values in Las Vegas have fallen 50 percent from their highs of a few years ago, and nearly half the state’s homeowners are upside down on their loans — meaning their equity has vanished. They owe more than the home is now worth and cannot meet the 20 percent equity requirement.
The Obama plan does away with that Fannie/Freddie equity requirement. It allows homeowners who are slightly upside down to refinance, too.
Under the plan you can refinance a Fannie or Freddie-backed loan if your loan-to-value ratio is 105 percent or less — meaning your new loan is no more than 5 percent above the home’s current value.
This is where the skeptics emerge.
Hard-hit Clark County boasted five of the nation’s top-20 upside-down ZIP codes. Loan-to-value ratios are at least 105 percent in those areas, with one as high as 120 percent, according to data from First American CoreLogic published in the fall.
How does the Obama plan help those people?
The answer is that it won’t help everyone. But Donovan, in his talk with the Sun, pointed out that while Nevada has some of the highest upside-down rates in the nation, most of the homeowners in the state still have loan-to-value ratios well under the 105 percent needed to refinance.
He’s right. Although Clark County has those five hard-hit ZIP codes, the statewide average loan-to-value rate is 89 percent, according to data from First American CoreLogic.
Donovan acknowledges that the plan isn’t for everyone. Rather, he said, “it’s focused on where it really helps to keep families in their homes, even if they’re deeply underwater. This is a serious issue in Las Vegas in particular.”
That’s where the second part of the plan kicks in. Here is how it works:
If you are a homeowner using more than
38 percent of your gross income for house payments, you could qualify for a government subsidy to help pay the mortgage — provided you also meet other conditions scheduled to be released March 4. (But you don’t have to be delinquent on payments to qualify.)
People could fall into this category for a variety of reasons: Perhaps they overreached and bought a house they could ill afford.
Maybe they took out an adjustable-rate mortgage that has reset to take a larger chunk of their paychecks. Or maybe they (or a spouse) lost a job as Nevada’s unemployment soared to 9.1 percent and what had been an affordable mortgage no longer is so.
People judged to be in this category can ask their lenders to agree to reduce the principal or interest to bring the mortgage down to the 38 percent level. The government will offer lenders some financial incentives to make the revisions.
Then, the federal government and the lender will share the costs of bringing that payment down from 38 percent to 31 percent of gross income. (That threshold, 31 percent of gross income, was for a long time the home affordability standard — until the go-go housing bubble tossed that out the window.)
Some people won’t like this plan because they fume at the thought of their tax dollars subsidizing their neighbor’s mortgage.
But the administration will argue that neighbors are in this together: Foreclosed properties drop neighborhood home values by 10 percent. The Obama administration thinks it will increase home values by 6 percent.
Banks are expected to favor helping homeowners who are not likely to default after the subsidy kicks in. The idea is to fix the problem long-term, not just delay foreclosures that are coming anyway. As Donovan said, there will be limits on how far the government will go to modify loans.
Banks will screen candidates by considering mortgage payment history, employment status and how much other debt the borrower carries. Nevadans have some of the highest credit card debt in the nation. So will Obama’s plan help Nevada? Or are the state’s housing problems too deep for the assist?
Jeremy Aguero, a principal analyst of the Las Vegas-based economic consulting group Applied Analysis, said: “Are people going to be helped? Yes. Is it going to help everybody? No.”
Bruce Marks, chief executive of Neighborhood Assistants Corporation of America — which has been leading tours of banking executives’ homes to protest foreclosures — doubts the Obama administration’s plan will help as many homeowners as it promises — 7 million to 9 million.
Not as many homeowners will qualify to refinance because they have second mortgages or their loans are not owned by Fannie or Freddie, for example.
As for the part of the program that could most help Nevadans in distress by subsidizing their payments, Marks says the government is just pushing the problem down the road. The program ends in five years and rates will be allowed to start creeping back up.
That’s no different than the adjustable-rate-mortgage problem that contributed to the mess, he said.
“We’re doing the same thing now,” he said. “Oh, this looks great — then what happens in three years or five years? Same problem.”
Clearly, the government is hoping the economy and household incomes will have recovered by then. Donovan’s department says that after the first five years of the program, rates will rise gradually, at no more than 1 percent a year, to the maximum prevailing government rate at the time.
Aguero said that in the end, many homeowners in Nevada may need to tap into the plan’s option of last resort: Allowing a judge in bankruptcy court to forcibly modify the terms of the loan.
This is the only part of the Obama plan that needs congressional approval, and it is a political fireball. Judges can write down loans for vacation homes in bankruptcy but not for primary residences. A previous effort to give bankruptcy judges this authority went nowhere last year in Congress after pushback from the mortgage banking industry.
This is the big stick carried by Obama’s plan. If judges are given the authority to write down loans in bankruptcies, lenders will have incentive to bargain with homeowners to lower their rates long before a family goes into bankruptcy.
Rep. Shelley Berkley supports this provision and will push for it in Congress.
Why wait for this aid, when people can take advantage of the aid out there now, from Citigroup and others. In addition to Citi, Fannie Mae, The federal gov't FHA, many states, JPMorgan Chase, Wachovia, and Bank of America/Countrywide have committed to helping over 2 million homeowners between them keep their homes. I found more info on the programs here.
www.needhelppayingbills.com/html/help_wi...
An excellant and timely piece of journalism for our community. CNBC should take a page out of your book instead of providing podiums for derivative traders.
Thank you for a balanced article.
Yes, a great article. Way to explain how the market is going to be subsidized making it harder for those trying to get into the housing market to actually buy a house. Those poor renters, not only will they have a harder time buying a house and they are having to subsidize (via their income taxes) those who made a poor decision to buy. For renters it is a lose-lose.
http://angryrenter.com/
Everybody is waiting so they can get the max out of a new government entitlement and a smack down of the banks.
When this week's Home Mortgage II program does not work because it is just like the $300 billion Home Mortgage I program from the July 2008 - too complicated and ulimately too expense, then we will get another Home Mortgage III program
Many will wait for a better simplier deal to come along.
What is it - make the note holders convert every and I mean every mortgage to a 3.5% loan.
It is the KISS approach. And treat every one the same.
Why doesn't anyone mention the homeowners that refinanced their homes so they could get their Hummers, Caddies, BMWS ,Jaguars ,Mercedes , 4 wheelers , campers and boats interest used as a mortgage interest deduction on their federal income tax?
Did they think the well wouldn't go dry?
I grew up with the idea that ones home was the anchor point to their life and ,once paid for would be retirement security ... todays generation treats a home as a short term investment to be milked dry and dumped sans the short term capitol gains taxes.
This plan is tiny. $75 billion is a tiny, tiny compared to the size of the housing mortgage market.
It rewards those who make bad decisions....sub-prime many of who are low income.
The refinance part will not help much. You can get refinancing out side the 20% rule now. It is very easy. You just have to make PMI payments.
The $1.10 a week per week tax credit giveaway is a joke.
This bill is a joke.
The middle class workers that make good decisions, pay their taxes and pay their bills. We are on our own.
Obama is not going to help us.
In another report it says people will now see about $65 a month more on their paycheck. Well unless the actual tax rate is going down I don't want to see that money now. I claimed zero and still owed 800.00 this year so the last thing I want is to get less taxes taken out during the year only to have to pay it all back and then some on April 15th. I hope this program means that our actual tax percentage to be paid is lower in conjunction with this lesser percentage of taxes that are going to be withheld during the year.
obama just doesn't get it, how destructive his ACORN-obama scummmmmmmmer,reid,peloski, water, dodd, frank murray housing-banking debunco was to the United States and particulary Arizona, Nevada and Florida. DEFUND ACORN NOW
nance...
Will you quit thinking short-term for once? Of course this plan sucks. But as I've asked you several times in the recent past, isn't it better than the alternative? Can you imagine what would happen to the housing market and mortgage industry if all of these mortgages are allowed to fail outright? It turns a 4 or 5 year problem into a 10 or 15 year problem. Think about it.
And who told you refinancing outside the 20% rule is easy? Did it occur to you that the majority of the people in this situation have credit scores that don't qualify with most lenders? Yeah, some people can get outside help on their own, but most can't. Get over your GOP way of thinking and start looking at the bottom 80%.
I don't like this mess any more than you do, but just because a Democrat was elected and not a Republican doesn't change the bigger issue. McCain would have to be going through this process as well, so just get over it.
And how the hell did ACORN get involved in this conversation? Is that just another bitter right-winger? Of course ACORN is flawed, but what organization ISN'T regarding anything with financial industry right now? We got to where we are through efforts by alot more organizations than just ACORN. And how exactly do you "defund" ACORN?
$75 billion???? That is almost doing nothing.
Helping losers who are in sub-primes who will most likely default on their loans no matter what......is not a solution.
The "stimulus" bill is the most god awful bill ever. It is a candy jar of goodies for all the various Democratic special interest groups. It is the shotgun approach where each pellet is a tiny compared to the US economy.
The $1.10 a week tax credit cash giveaway is a joke.
The infrastructure spending is small compared to US ecomony and will years to be spent.
All that bill does is add debt and when the federal bonds flood the market will crowd out private investment.
Obama and the Democrats had\have opportunities to do something big with a solid unified approach.
They are striking out big time.
Next year or even later this year, there will be "stimulus II". It probably will full of the same jokes but nobody will be laughing.
Pathetic is the only word I can think of about this whole affair?
Why should we be subsidizing some losers mortgage. F@ck that. They should go under and lead the dead bodies rise.
This system will not get better until the government stops meddling with the markets natural way of working though bad debt(i.e. bankruptcies).
Until that time, all so-called programs will fail miserably. The day the government puts up its hands and says no more bailouts it the day that the bottom will be in.
Home prices are still unaffordable in many parts of the country and need to drop more. Government intervention to prop up homes prices will end up doing precisely the opposite. Expect home prices to fall even further as the government further undermines responsible buyers efforts to establish a bottom.
"But as I've asked you several times in the recent past, isn't it better than the alternative?"
Harske, you have it backwards. This plan is extending the pain out 10 - 15 years by keeping prices artificially high instead of letting the market find its resting point as quickly as possible.
What happens in 5 years when the subsidies run out? Do you expect people to in a stronger position because they have changed their behaviors? Why? After all the government bailed them out, so why should they change their behavior?
Unlike many other countries including Mexico that does not allow a foreign national, from owning a property outright. In America we have given title to anybody who can afford the price of a home. This has come under extreme scrutiny, because millions of illegal aliens have been allowed to buy properties. The media have been closed-lipped but in the serious downturn of our economy thousands have walked away from their obligations. We now know that many used fraudulent documents including bogus social security numbers to buy homes, in collusion with criminal brokers. No foreigner, unless proven legitimate should be allowed to purchase any home, land or any property.
If Americans and legal residents voice their objections and demand that E-Verify is reinstalled permanently. It will halt, once and for all illegal immigrants getting work, instead of American workers. All businesses nationwide would comply, or look forward to heavy fines or a term of imprisonment. We shouldn't let powerful Senators such as Harry Reid (Dem-NV) kill e-verify, as he did in the Stimulus bill. This gives full rein for illegal aliens to steal American jobs. E-Verify is the only tool we have that has a 99.6 percent success rate, to remove illegal immigrants from the workforce.
Deluge the Washington Switchboard before March 6 at (202) 224-3121 In addition you can call President Obama at 202-456-1111. Switchboard: 202-456-1414 Sitting back and doing nothing is what politicians expect.!