Love it or hate it, the Obama Administration’s $275-billion effort to ameliorate the foreclosure crisis offers a sizeable amount of gritty detail, doesn’t attempt to rescue everybody, and has a realistic tone. The banking sector seems content enough, with American Bankers Association svp and COO Diane Casey-Landry describing the Homeowner Affordability and Stability Plan as a “constructive, flexible and multifaceted initiative likely to have a positive effect on preventing mortgage foreclosures.”
The Mortgage Bankers Association expressed similar enthusiasm: “We are encouraged by this effort that will provide a variety of alternatives to help a wide array of borrowers,” noted John A Courson MBA president and CEO, and MBA chairman David G. Kittle in a joint statement. But the group has reservations about the scope of the help. “Among the concerns we have is that it seems to offer little help to borrowers whose loan exceeds their property value by more than five percent,” the statement continued. “This will limit the plan’s success in some of the hardest hit areas in California, Florida, Nevada and Arizona, as well as some of areas on the East Coast,” Kittle and Courson cautioned.
And individual banks chimed in with words of encouragement. “The administration’s focus is consistent with the approach we have successfully been using with our customers,” according to Barbara Desoer, president of Bank of America Mortgage, Home Equity and Insurance. JPMorgan Chase CEO Jamie Dimon told CNBC viewers, “To me the whole package is elegantly done,” adding that one million plus JPM Chase mortgages will be modified under the Obama plan. That’s a big chunk of the 7-9 million homeowners the White House hopes to help.
Some observers aren’t exactly thrilled by the central role to be played by those two exhausted warhorses, Fannie Mae and Freddie Mac. Treasury will double its preferred stock purchase agreements with the ailing GSEs to $200 billion each, and increase their allowable debt outstanding.
Yet the prevailing opinion is that something is better than the alternative, and the foreclosure plan is given a good chance of stabilizing this nasty downward spiral, a key to setting a floor to the housing market contraction. “A lot of this stuff is preparing the legal authority to do things,” says Randy Johnson, mortgage expert at credit.com. “I don’t care—it’s a start. We’ve been fooling around with this crisis since October 2007, starting with the Hope for Homeowners. This is a serious plan. The incentives are good, the gradual ramp up to market rates is a good thing.”
As for those homeowners who are not covered by the plan, “that’s a gray area,” Johnson says. “There are those who were never able to afford the payments, who shouldn’t have bought. Others were just stretched into a mortgage.” Johnson describes an egregious example of a housekeeper/gardener couple with a combined income of $40,000 “who were sold a $300,000 house and then a $600,000 house at 100 percent financing.” Meanwhile, he supports the plan’s call for changes in bankruptcy law: “It is not unreasonable to give bankruptcy judges a whack at keeping people in their homes.”