Our Blog

Skepticism greets new federal plan to help homeowners

Skepticism greets new federal plan to help homeowners – Tampa Bay Times.

So the latest plan to rescue housing is coming out of Washington. Perhaps not coincidentally in an election year. Putting into place a way for underwater homeowners to refinance at lower interest rates and reduce their monthly payments sounds like it might have a positive impact but seems to fall short of addressing the real problem – underwater mortgages. Jack McCabe says in the article “it’s like putting a Band-Aid on skin cancer”.

Assuming this proposal would ever navigate the gridlock of congressional approval in a still recognizable format is highly unlikely. Assuming it did, I’m concerned that it will solve some problems at the expense of prolonging others. For example, while a wave of refinances should put real consumer dollars into the economy, it does nothing to affect the balance sheets of underwater homeowners that still own a loan worth more than the property it represents.

Additionally, while a move like this provides a much needed boost for lenders, mortgage brokers and title companies through transaction fees, it may discourage sellers from pursuing short sales. This could result in further depression of transactions and home prices . Depending on individual circumstances, getting the monthly payment lower may or may not be of benefit to the homeowner long term.

In summary, we see some potential for short term relief and a nice wave of refinance business resulting from a program such as this. But, we see two primary issues that complicate any benefit. The first is unintended consequences to the housing market at large and the second is that the likelihood of approval amid the analysis paralysis of this highly ineffective congress is highly unlikely.

What is your opinion on this and other government attempts to “right” the housing market?