Not every troubled homeowner will benefit from the Obama administration’s $75 billion foreclosure program, according to several economists and housing analysts. Homebuyers whose houses have been foreclosed and sold as cheap houses for sale can not qualify for the program.
Obama’s plan is meant to help at least three kinds of homeowners: homeowners current with their payments but want some help with their monthly payments to avoid foreclosure, homeowners already in foreclosure but who can restore their monthly payments with some financial assistance and homeowners not troubled by foreclosure but who want to refinance their loans to capitalize on lower mortgage rates. Clearly, the plan can not help former owners of foreclosed properties that have already been marketed as cheap houses for sale.
According to Columbia Law School professor Edward Morrison, Obama’s plan, which was designed to save 9 million homeowners, can not stop all foreclosures. He said only about 33 percent of current foreclosures will be stopped.
Housing Secretary Shaun Donovan also said that only a few percent of underwater mortgages can qualify for loan modifications. Most of these would go into foreclosure and then sold by the banks as cheap houses for sale.
Underwater borrowers are those whose remaining home loan balances are much higher than the value of their homes. Housing analysts say there are about 12 million homeowners who are underwater, with about a third of them in default.
Some of these underwater borrowers may qualify for loan modifications, but will surely stay underwater because of low home prices. Home prices continue to decline because of the continued entry of cheap houses for sale into the market.
For many underwater borrowers and homeowners who have been unemployed for a long time and have no certain employment prospects in the near future, the options are bleak and few. Some can opt for a short sale if the lender agrees. The borrower can save his credit record and possibly obtain another mortgage loan in the future when things get better. The lender can benefit by receiving cash immediately as cheap houses for sale are usually sold fast.
Finally, many economists are saying that the most effective way to help jobless homeowners is to provide them with jobs. Obama has responded to the unemployment problem with the $787 economic rehabilitation program, which plans to create or protect about 3.5 million jobs. Jobs will also rehabilitate the housing market, as employed Americans can buy cheap houses for sale with the lower mortgage rates.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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