Obama’s $275 billion plan to help as many as nine million American homeowners refinance their mortgages, avert foreclosure and help shore up and stabilize housing prices is encouraging, but it doesn’t do enough, about, for instance, legal impediments to mortgage modification, said a U.S. Congress watchdog panel on Friday.
Reuters: In a report that highlights the soaring U.S. home foreclosure rate, the panel said the rescue plan also falls short in dealing with second mortgages and on empowering bankruptcy judges to help struggling homeowners.
The report praised estimates that Obama’s housing plan could aid up to five million homeowners with expanded Fannie Mae and Freddie Mac refinancing. But it noted, “The panel has additional areas of concern that are not addressed.”
One is that the plan lacks legal protections for mortgage servicing companies that face litigation risk if they try to help struggling borrowers by redrawing their mortgage terms.
Servicers collect monthly payments on home loans, pool them and send the money to investors in mortgage-backed securities. Servicers have to abide by “pooling and servicing agreements” with the investors that can strictly limit modification of mortgages since that can cut into the investors’ profits.
Those agreements have been a key obstacle to the government’s efforts to get servicers to modify more mortgages by, for instance, reducing the principal or interest rate.
The Obama plan lacks a coherent approach to this issue, said the oversight panel.
Besides not addressing the questions mentioned above, the rescue plan also seems more ambitious and expensive than many analysts had anticipated. What’s more troubling is the fact that industry experts now believe the plan would not come even close to halting the tidal wave of foreclosures. According to a report released earlier this week by First American CoreLogic ; a signifcant number of homeowners are “upside down” on their mortgages — precisely the group of people who are least likely to benefit from the housing plan the current administration began detailing this week. Furthermore, industry experts agree few homeowners in hard-hit areas such as Phoenix, Las Vegas and much of California, where home prices have plunged more than 50%, are likely to qualify for the program. The question is: if there’s nothing in the program about modifying second mortgages, and the bulk of homeowners in states with a high foreclosure rate are unlikely to qualify for aid — how can you get this done?!!!
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