Obama’s Housing Plan Unveiled

I have to say I like the look of Obama’s housing-bailout plan. It’s quite elegant, and makes full use of the fact that Fannie and Freddie are now owned by the US government — which means they can be forced to offer 105% loan-to-value mortgages even when the borrower isn’t creditworthy at all.

Obviously, all of this comes at a cost to the US government: the figures being bandied around today range from $75 billion in the NYT to $275 billion at Bloomberg. But really nobody has a clue how much it will cost: that’s entirely dependent on whether or not the plan succeeds in arresting the fall of house prices.

I especially like the idea of offering loan servicers $500 if they modify a loan before it becomes delinquent, especially if it’s accompanied by an easy and streamlined mechanism for getting such modification requests into the Fannie and Freddie systems.

This plan isn’t designed to directly help borrowers who are massively underwater: if your first mortgage is more than 105% of the value of your house, you’re ineligible. That will help reduce some of the costs to the government, and move them over to the lenders, who now look as though they will be bailed in to bankruptcy proceedings — a long-overdue development.

Incidentally, this plan is certain to increase the astonishingly high delinquency rates on non-agency mortgages, since it’s basically designed to take most of the remotely viable non-agency mortgages and refinance them into agency mortgages, leaving only the complete and utter nuclear waste behind.

So far, there’s not even a glimmer of a plan for how to get private-sector lenders back into the mortgage market in any significant quantity — and that’s going to hurt markets like Manhattan, where most mortgages are non-conforming. But Manhattan property owners are rich enough to look after themselves. This plan aims straight at the heartland, where it really matters. It’s a good start, but it might well yet prove to be insufficient. We’ll see.

This entry was posted in housing. Bookmark the permalink.

3 Responses to Obama’s Housing Plan Unveiled

  1. Ken Houghton says:

    I promise to go into crisis over the delinquency rate on “non-agency mortgages” and lack of “a glimmer of a plan” to go the so-called private market going when you figure out how to rationalise the balances between those two statements as anything other than A Good Thing.

    Shorter Felix Salmon: The private market really f*ck*d up mortgages, and we need to find a way to get them “working their magic” again.

    Collateral point: if the max is LTV 105, and the market has fallen at least 30%, draw a Venn diagram of (1) the loans resetting in the next two years and (2) the loans covered by the program without a cramdown or other Principal Adjustment. My personal bet is that the resulting “shard of overlap” wouldn’t be large enough to cause a paper cut. (Basically, you can start by excluding any mortgage where Mortgage Insurance was required, forget the Option ARM/neg amort guys.)

  2. The housing plan needs to be shelved. Yes it is unfortunate that people attempted to live beyond their means, but I do think those that did live within their means should pay for the mistakes of those that did not. Normalcy will NOT return to ANY market until the bad debt is forced into the open and defaulted. It won’t be painless I can assure you, but it will give us a place to begin rebuilding our economic system on a solid base.

  3. fgdf says:

    The world’s top luxury brands.sexy,gorgeous,fun.

    for a woman,Exudes a fatal attraction


    all in there.

Comments are closed.