The Obama administration unveiled its plan to stem foreclosures today, a three-part, multibillion-dollar rescue package that will, the administration hopes, make refinancing easier, loans more affordable, credit more available, and generally help Americans hang onto their homes. But not all Americans. In his speech today from Arizona, Obama promised the plan would not help "the unscrupulous or irresponsible," or "reward folks who bought homes they knew from the beginning they would never be able to afford."
But this, of course, is untrue, in the same way the old saw about Santa Claus only bringing toys to good children is untrue, because this is a big freaking country and coordinating such a large-scale plan while driving a sleigh around is hard enough without also vetting everyone's character individually. Or something. Anyway, the naughty will benefit just as much as the nice, pundits are already pointing out. Among other things!
• Portfolio's Felix Salmon likes the plan overall, and in fact finds it "elegant." Especially in that it "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."
• Barry Ritholtz says that while the plan is "better than [he] expected," he is disappointed that the administration is focusing on keeping home prices up. "While houses are not as wildly over-priced as they were a year ago, they are still too high by most metrics. To effect a stabilization, housing bottom and recovery, they need to fall further."
• Clusterstock's James Carney is disturbed by part two of the plan, the Homeowner Stabilization Plan, which awards borrowers that stay current on their loans up to $1,000 each year for five years and makes use of adjustable rate mortgages, the same sort of "exploding" payment plans that enticed people to buy homes they couldn't afford in the first place. "The Obama administration promises [the mortgages] will reset at a moderate phased-in level," he writes. "But the loss of both the subsidy and the $1000 payment will automatically make the monthly payments much more expensive … We could, in short, simply be prolonging the housing crisis."
• The grouchy blogger at Calculated Risk concurs. "This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure — prolonging the housing slump." CR also quibbles with the administration's plan to give those homeowners who financed through Freddie Mac and Fannie Mae access to low-cost refinancing — because while that's nice for them, it's kind of unfair that people who used other lenders or whose mortgages were sold and securitized don't get to partake.
• David Leonhardt at the Times' Economix blog would concur with this latter point. He also adds that, contrary to what Obama said in his speech today, the core of the plan — which gives banks a financial incentive to reduce many mortgage payments to no more than 31 percent of a borrower’s income — "will end up helping a fair number of people who bought homes that they should have known they would never be able to afford … Certainly, some who took out a reasonable mortgage and later lost their job will be helped. But people who bought too much house — and banks that allowed people to do so, or even encouraged them to do so — will also benefit." Still, he concludes: "As distasteful as this may be, it’s the only way to make a serious dent in foreclosures and, in the process, to help the financial system."
• Over at the Big Money, Alyssa Katz points out that the implementation of the plan will be harder than it seems. "Millions of speculators lied on their mortgage paperwork in order to get the cheaper and looser mortgages available to homeowners, and it's doubtful most will want to hang on to their property even if the feds are willing to help them. Among actual homeowners, spiking unemployment — some of the worst of it in the same bubble areas, like inland California, where homebuyers borrowed most excessively — will make it impossible for them to afford even the most creatively modified mortgage."