Push for new homeowner deal helps who the most?

Lost in the news of President Obama flip-flopping on his position of support for Israel, and the Super Tuesday race for Republicans, was more news affecting homeowners. Continuing a push from the State of the Union Address, President Obama emphasized that Congress act on his plan to help homeowners. The critical question is who is this a benefit for.

In the State of the Union Address, on January 24, 2012

“That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.”

President Obama pushed the idea further on March 7, 2012

“There are real things we can do right now that would make a substantial difference in the lives of innocent, responsible homeowners.”

But a key bit of wording keeps cropping up. “Responsible homeowners”. Who are they? How do you classify them? How badly are they in need of Government help? **Note – if you only care about soundbites, and don’t care about the real details and impact of what is being talked about, stop here.**

Well according to the Reuters piece, which backs up what the White House has said, ‘responsible homeowners’ are those that are current on payments over the last 6 months, and have up to date income verification. That comes to a total of around 2 – 3 million homeowners eligible. They would save on average, under the more detailed plan, about $1000 per year.

Now for the really important details that get glossed over. The White House, in the same Reuters article, states that the actual number of homeowners likely to be helped are in the “hundreds of thousands” – not even a million apparently. Also glaringly different than the soundbites is the fact that apparently $2000 in savings to homeowners just vanished.

But look at this from a different viewpoint. It’s helping homeowners, and “hundreds of thousands” are a lot of people.

3.2 million homeowners won’t qualify just because of the June 1, 2009 cutoff date. 11.1 million homeowners are currently underwater on their mortgages. According to RealtyTrac, as of Jan 1, 2012 there are 1 out of 624 homes in foreclosure [a low figure would be 1 in 63,500 homes]. Lastly, homeowners must have a Federal Housing Administration loan – which covers 1/3 of all new loans.

Thus, without looking deeply into the plan by the Obama Administration we have already found that fewer people will be helped, and to a lesser degree, than has been promised and publicized. Which essentially lays this at the feet of re-election hype.

But is this all hype? Has there been improvement in foreclosures and mortgage defaults? If so doesn’t the President deserve the credit?

There has been an improvement in the mortgage defaults and foreclosure rate. That is, depending on where you are looking from. If you are comparing from December 2011 to the most recent reports on US Home Foreclosure Filings Jan 2012 [interactive chart found at Bloomberg], then no. The rate has increased.

If you look back to October 2011 to Jan 2012, the improvement is about 10%. A 1 year look back provides about 15% improvement. 3 years and the improvement is approximately 48%. So President Obama should be taking all the credit, it’s an apparent success.

But that is not exactly true. From February 28, 2009 until September 30, 2010 there was the Making Homes Affordable program. That was the plan, created by the Obama Administration and passed by the Democrat Supermajority, that was supposed to help homeowners facing foreclosure and mortgage default. The program cost over $75 billion (part of the $830 billion for the Obama Stimulus), and was an utter failure – even according to Democrats. US home foreclosure filings went from 290,453 per month to 347,420 per month in that timeframe.

As of February 11, 2011 we reviewed Making Homes Affordable success rate -

“…more than half of those enrolled dropping from the program and 54% of those that were helped by the program redefaulting.”

In the Febraury 11, 2011 article we also reviewed the proposal from President Obama on dealing with the $150 billion (at that time) spent on the continuous bailout of Fannie Mae and Freddie Mac. This proposal went nowhere, as was expected. It was placed in front of Congress to show action by the Obama Administration as it wound down Making Homes Affordable, even as they had no answer for the homeowners they promised to help on the 2008 presidential campaign trail. In fact, the proposal on February 2011 caused several organizations representing minority and low-income homeowners to protest

“But from NCLR’s perspective it’s not that the Governments current role is what we are looking for, I think its broadly acknowledge that the Federal Government has way too much exposure in the mortgage market and this is not at all our ideal system. We very much support a thoughtful moderately paced transition away from the system and there’s a lot of folks a lot smarter than myself trying to figure out how to wind down Fannie and Freddie. So it’s not correct to say that current levels of Government support is what we are shooting for.

I’ll go on the record saying the same thing to the Administration, that they did not take a position on these 3 options but we would call on them to reject the first 2. They are not a direction we want to see our policymakers, the Administration, or Congress go.” – Janice Bowdler, Director of the Wealth Building Policy Project at the National Council of La Raza

This is important because at the end of the day, the Government, via the Obama Administration, got out of the way of the housing markets. The Government stopped its grand overtures to control the market as doing so was politically disadvantageous. Looking at the result of the Government’s lack of action, from November 30, 2010 until January 31, 2012 filings decreased to an average of 228,666 per month, as detailed in the Bloomberg interactive chart noted above.

Therefore the conclusion is that the Obama Administration deserves to be chided for its failures with respect to Making Homes Affordable, Fannie Mae and Freddie Mac. At the same time the Obama Administration should be lauded for its inaction, allowing markets to recover naturally, and the improvement that has resulted from this inaction.

Thus, based on prior experience and the details beyond the soundbites we can determine the following:

  • The less the Obama Administration is involved the better housing markets and foreclosure rates perform
  • The proposals by the Obama Administration are being watered down with time, inferring that they have been said to garner the largest political benefit with the least political backlash
  • Even Liberal organizations prefer a smaller stance of Government in the housing and mortgage markets
  • Even if the Obama Administration were to act, the impact is far less substantial to the economy and withheld to a far smaller number of homeowners than is being played up in soundbites.
  • It is quite likely that if action is taken, the result will be less beneficial to homeowners than inaction
  • The group of homeowners most in need – those in mortgage default and foreclosure – gain no benefit from the proposed Government bailout

    So who is being helped in the end? The Obama re-election effort.

    The soundbites sound great, until you listen to them in detail. The proposal seems important to the economy, until you realize its true scope. It sounds like this is swift action that will help millions, until you get clarification that it can’t and won’t even try.

    Rating 3.00 out of 5
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