Economics

Obama’s underwhelming housing plan

President Barack Obama’s latest proposal to help struggling homeowners—to be followed soon by a student debt initiative—isn’t likely to be much more successful than previous efforts. An analysis by MF Global’s Washington Research Group estimates the plan to make it easier for homeowners to refinance their mortgages will target just “600,000 to 1 million more refinancings of underwater borrowers. … For those who get HARP refinancings, this offers economic help. But we don’t see how this turbo charges the economy.”

If that analysis is accurate, this housing relief effort by the Obama White House won’t accomplish more than previous attempts. Back in early 2009, Obama promised to help “as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.” But just 816,000 homeowners have received permanent mortgage modification through federal housing programs.

That’s small potatoes. Tiny potatoes, really. According to CoreLogic, some 11 million, or nearly a quarter, of all residential properties are in negative equity. Another 2.4 million have less than five percent equity. More than 4 million mortgages are at least 90 days delinquent or in some stage of foreclosure, with another 3.4 million mortgages likely on their way during the next year, according to some analysts.

Sure, any little bits helps. But it’s hard not to conclude that this meager plan is little more than an effort in political theater, a campaign-season sop to worried middle-class voters and the Occupy Wall Street movement. Given the small scope of the housing plan, it’s likely that the student loan piece will be little more than a recycling of previous proposals. All in all, just enough to garner positive headlines but not so much as to scare taxpayers or bankers. Obama wants to be seen as compassionate yet fiscally responsible. A little bit OWS, a little bit Tea Party.

Economists, however, do have some ideas that might help. One comes from Columbia University’s Christopher Mayer, which would allow every—more or less—current homeowner with a GSE mortgage to refinance to a new mortgage with a 4.2 percent rate or less. Mayer estimates mortgage payments would fall by about $70 billion for 25 million borrowers (vs. Obama’s 600,000), or nearly $3,000 in average savings.

But some people just can’t afford their underwater homes, even with lower rates. In those cases, foreclosures, ASAP, are the answer. Or at least more of an answer than what Obama is offering.

3 thoughts on “Obama’s underwhelming housing plan

  1. Mr. Pethokoukis,
    I don’t believe Obama has the right answers to all of America’s problems; I have plenty of doubt that this program will cause a major dent in healing our diminishing economy. However, I am an American patriot and feel that if this program helps just a FEW Americans, then I will be happy that at least SOMEONE (an American) receives a little debt relief. This program helps the 75% who is paying above the current market interest rate. With this program, underwater homeowners would be able to lower both the interest rate AND the principle while contributing to our diminishing economy. Who wouldn’t want that? This program addresses negative equity. Again, what is wrong with that?

    To state that those who cannot afford lower interest rates immediately seek foreclosure as an answer is just irresponsible. The more foreclosure our Nation endures, the less healthy our economy becomes.

    I can’t believe I allowed myself to entertain this article, as it is VERY obvious you are subjectively against honorability. Where is YOUR honor and self-respect? If former President Bush had implemented this program, I am willing to bet the family farm you would be in favor of it. In that case, you would deem it a balanced piece. How would I have known that “The American” was just another biased Blog-spot instead of news source filled with integrity and honorability?

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