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October 20, 2014

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the economy:

Is Obama’s mortgage refinancing plan too narrowly focused?

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Sam Morris

President Barack Obama walks with, from left, Jose Bonilla, Lissette Bonilla and their children Margarita Bonilla, Franco Bonilla and Mario Bonilla before Obama spoke about the American Jobs Act on Oct. 24, 2011, in Las Vegas. Obama also announced a housing initiative to help homeowners with federally guaranteed mortgages refinance their homes.

The Four Changes in Obama’s New Housing Plan

  • 1. Elimination or lowering of fees for refinancing, title insurance, lien processing and closing costs. Also in most cases, appraisals won’t be necessary to refinance: The government will work from an automated calculation.
  • 2. Streamlining “representations and warranties,” which are necessary to transfer loans from one bank to another. The government thinks this will enhance confidence and competition between banks for loans, which will create incentives for banks to renegotiate mortgages.
  • 3. Major mortgage insurers will transfer coverage from an old loan to a refinanced loan automatically.
  • 4. Re-subordination of second liens will become automatic, so if you have a second mortgage on your home that you want to keep while you refinance the first, that’s now much easier.

East area neighborhood welcomes Obama

KSNV coverage of President Barack Obama campaigning in Sunrise Manor, a neighborhood near Las Vegas High School, Oct. 24, 2011.

Obama Speaks on Jobs and Housing

President Barack Obama walks with, from left, Jose Bonilla, Lissette Bonilla and their children Margarita Bonilla, Franco Bonilla and Mario Bonilla before Obama spoke about the American Jobs Act on Oct. 24, 2011, in Las Vegas. Obama also announced a housing initiative to help homeowners with federally guaranteed mortgages refinance their homes. Launch slideshow »

Obama arrives in Las Vegas

Air Force One comes in for a landing at McCarran International Airport Monday Oct. 24, 2011. Launch slideshow »

A foreclosure-riddled neighborhood in east Las Vegas was a fitting backdrop for President Barack Obama to discuss his plan to help some of the nation’s homeowners who have been financially decimated by the real estate crisis. Not only is Las Vegas the nation’s foreclosure capital, but of those who are still hanging on to their homes, about 60 percent owe more on their mortgages than their homes are worth.

Whether that plan could actually help the homeowners who stepped from their stucco and tile-roofed homes Monday to hear his remarks was a matter of debate.

To critics, Obama’s announcement that more underwater homeowners will be eligible for refinancing amounted to political grandstanding in a state sorely in need of a true solution to the foreclosure crisis.

To those more sympathetic, it was a sincere effort to address a problem so large that only a series of case-by-case policy fixes will lead to a solution.

Experts on both sides of the political divide, however, agreed that the program designed to stem the tide of foreclosures may help some homeowners, but will do little to address the larger foreclosure crisis.

The program is aimed at a narrow category of homeowner — those who can pay their mortgages but who owe much more than their houses are worth — but it’s a category that describes many Las Vegans.

“It would be surprising if it did something transformative for the economy,” said Robert Lang, director of Brookings Mountain West. “But if a person is impacted by that specific circumstance, it helps you.”

But the fact that the new rules are so narrowly targeted fired up critics who see them as a political sop.

“I’m just not somebody who thinks that the biggest problem is people with jobs, who have no problem paying their mortgage but are stuck with 6 percent rates,” said Mark Calabria, a fellow at the Cato Institute, a libertarian think tank. “It’s a weird priority. It’s going where the votes are.”

Under the new program, homeowners who are current on their payments, have government-backed mortgages and who are up to 25 percent underwater will qualify for refinancing to a lower interest rate.

Although the program doesn’t address principal balances, it would make monthly payments more affordable, giving homeowners more money to spend, stimulating the economy.

The new program would also increase the ability of major banks to compete for the refinancing business, eliminate the need for an appraisal in many cases and reduce refinancing fees — all good things for Nevada homeowners, said Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV.

“This is huge,” Daneshvary said. “If this is implemented, people really can find solutions now.”

Lower monthly payment could reduce the incentive for homeowners who like their neighborhoods and don’t want to move in order to strategically default.

But the new rules could do little to assuage those with homes that may never again be worth what is owed — a fundamental problem in Nevada.

The majority of homeowners who take advantage of federal refinancing programs eventually default anyway, Daneshvary noted.

“I think these refinancing options, not requiring appraisal, reducing the fees for refinancing are all the elements that will help,” Daneshvary said. “But I think the bigger solution is add to it some … principal reduction.”

Obama’s speech counters the stance taken by most Republicans vying for the chance to oust him from the White House.

“No. 1, the barrier will be lifted that prohibits responsible homeowners from refinancing if their home values have fallen so low that what they owe on their mortgage is 25 percent higher than the current value of their home,” Obama said in his Las Vegas speech.

“And this is critically important for a place like Las Vegas, where home values have fallen by more than 50 percent over the past five years.”

While in Las Vegas last week, most GOP presidential candidates advocated a hands-off approach, arguing the government needs to get out of the way and allow the market to take care of the problem — even if it is a painful correction for many homeowners.

At the heart of the argument: Is there still a role for government to play in the crisis?

Obama’s answer is clearly yes.

And that aligns with what many experts, both conservative and liberal, believe — that the foreclosure crisis is too great to simply leave to the market.

“It’s better to put positive structures in place and hope for a universal lift to the economy than it is to not attempt intervention in something as serious as a housing collapse,” Lang said.

But if the government is going to intervene, find a better target, Calabria argued.

“If you can afford your payment but would rather have a 4.5 percent rate, is that any concern to me as a taxpayer?” he said. “If I went and gambled away everything on the tables in Las Vegas, do we decide the taxpayer has to underwrite that? How is this a tragedy for them?”

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  1. This action is not a good one on several levels.

    1) It is unfair to people who have a home that is underwater but don't have a federally insured mortgage. They cannot qualify.

    2) It is unfair to those that have homes that are further upside down than the program allows but are still making their payment. They cannot qualify.

    3) It is unfair to those that have lost 'almost' all their equity but have high interest rates. They cannot qualify.

    4) It is unfair to taxpayers who will be left holding the bag if these homeowners default after the refinance under this program.

    5) This program affects too small a segment of homeowners nationwide and especially in Nevada and Las Vegas to have much effect on the economy.

    Michael

  2. Osama Obama just can't keep from coming up with new ways to bankrupt the USA, can he? If all it took was "throwing" money at the problem, we'd be at full employment and the housing "crisis" would be just a memory. The cretin Osama Obama has wasted trillions on schemes that proved fruitless and he wants more of the same. The definition of insanity is doing the same thing over and over while expecting different results. The screwball Osama Obama can't come to grips with reality and allow the market to make the necessary corrections. He should be certified as the nut he is and locked away in an asylum. We'd all be safer as would our pocketbooks!

  3. "Home Prices in 20 U.S. Cities Decline More Than Forecast"

    "Oct. 25 (Bloomberg) -- Home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.

    The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from August 2010, the group said today in New York. The median forecast of 30 economists surveyed by Bloomberg News was for a 3.5 percent decline."

    While the nerds are arguing about the focus, scale and domain, reality strikes.

  4. Vegas Inc: "Seventy-five percent of all residential resales are distressed, or in some state of foreclosure. Fifty percent of those homes are bank-owned....Meanwhile, current sales volume for residential units is being driven by cash-rich investors snapping up homes, 80 percent of which are vacant.....Panel members said housing prices could return to 2002-03 levels within a decade, but only if the market would begin steadily producing an annual appreciation rate of 3 percent."

    10 more years before prices return to 2002-3 levels. How many Valets are buying houses?

  5. The opening question is "Is Obama's mortgage refinancing plan too narrowly focused?

    Yes!

    However, giving the President's limited authority (congress has the authority to approve spending Tax Payers dollars) this action is more to show He is taking action. This is not enough, not even close in helping people in need of real help.

    You must remember this is the silly season, campaign time, next year is the election. At least the President is "doing something" instead of saying "no" to everything! The President is not saying "no" to reasonable items that can and will help the most needed right now. On this front the President is winning by a thin margin. We the people, the voters, the independents are losing. Both parties are to blame!

  6. This is nothing more than buying votes by helping the irresponsible. This buffoon needs to go the sooner the better.

  7. Any help should be appreciated. Is it too little? Probably. Is it narrowly focused? Probably. WILL IT HELP SOMEONE? YES!!! Let's try and focus on the positives here.

  8. Debt Forgiveness is the only solution that will fix the nationwide housing crisis. People that were either responsible or fortunate enough to have equity should receive tax credits for not having to have any of their debt forgiven. After 8 years of deregulation and incompetent federal housing programs this mess is too far gone for Obama or the next President to recover from.

  9. You people arn't buying into this 'Flim Flam Artist" scam are you?

  10. @Jim Reid.

    I would think that the people still paying there mortgage in there underwater homes are the most responsible ones in this whole mess. Most of these people are in trouble not because of there decision making but because of wall street and we all know they were well rewarded for there criminal behavior your anger and hate is misplaced.

  11. By mike_kerns (mike kerns)

    I think you are substantially WRONG to say that people with "...underwater homes are the most responsible ones in this whole mess."

    I am $38,000 underwater.
    I will never get my $100,000 down payment back.

    I am still paying my monthly $1,887 per month mortgage - and have no intention of forclosing.

    I believe that NOW, most people fit the mold I am in.

    Just wanted to set the record straight.
    THIS DEBACLE ISN'T THE FAULT OF PEOPLE UNDERWATER!

    It is the fault of greedy bankers, lenders, and real estate agents. The "unsecured," government-forced loans - (See the "American Dream Down Payment Act" which was legislated by Congress and signed INTO LAW on December 16, 2003) - was an ill contrived scheme to get more minorities into a house.

    This legislation provided the means for ANYONE to get a home, and the (soon-to-go-bad) loans were passed on by the banks - to be guaranteed by Freddie Mae and Freddie Mac; who then, passed the loan securities onto WALL STREET, who packaged and sold the good and bad loans under the cover of (alleged) "AAA" securities - and mixed the good with the bad loans, in "AAA" securities packages that they sold here in America, and abroad.

    The result was GREED killed "everyone" - even those who bought the "AAA" securities, because they did not even LOOK at what they were buying.

    This story has been stated, and re-stated many times.
    This is the end of the story - and my comment.