Not long ago, when the Obama administration announced it was going to roll out a housing rescue program called the “Mortgage Modification Program”, I wrote that while I was personally fundamentally opposed to government intervention in this market, the Obama plan, as proposed, would likely not work. (See my blog entry of February 23, 2009).
In the weekend edition of “USA Today” (May 15-17, 2009) there was an article that suggests I was correct. The article titled “Obama’s Housing Plan Gets Additions” described the new ‘lifelines’ the Obama administration is throwing to homeowners who are facing foreclosure.
The enhancements to the previously released program include foreclosure alternatives designed to help homeowners who are unable to qualify for mortgage modification under Obama’s original plan. These new enhancements will allow homeowners who don’t qualify for mortgage modification use of a new streamlined process to pursue short sales and deeds in lieu of foreclosures, which transfer a home back to the lender. Either of these outcomes can help homeowners avoid ‘dings’ to their credit score. (Note: If you’re not familiar with the term ‘short sale’, it is simply a sale of the property for less than the amount owed on the property, but the lender considers the loan as having been paid off.)
Under the new enhancements, homeowners will also have additional protections against falling home prices. A total of as much as $10 billion in incentives could be paid to lenders, mortgage servicers and investors to modify loans.
Bottom line is the original plan isn’t working.
The Obama administration said in February, when rolling out the plan initially, that it planned to help 9 million homeowners, yet according to the ‘USA Today’ article, the government has only extended 55,000 loans to qualifying borrowers since the program began.
Meanwhile foreclosures are continuing to rise. RealtyTrac says the number of households facing foreclosure rose 32% this April from April of 2008.
Mark my words. The foreclosure problem, in my opinion, will continue through 2011, and these enhancements won’t be the plans last.
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