On March 4, 2009 the complete details of the Homeowner Affordability and Stability Plan will be released. I have previously expressed my opinion on the plan, based on what has already been publicized, particularly objecting to the incentives and rewards included in the program to both banks and homeowners. Though, this plan is predicted to help between 7 and 9 million homeowners keep their home, through low interest refinances, loan modifications, and even principal reductions, The President stated in his televised speech last week that the program will only be available to help “responsible borrowers”. Though this statement was met with a round of applause in the audience, it of course leads to the following question: Exactly who are the responsible borrowers?
First some facts:
1) It is estimated that about 93% of Americans are not behind on their mortgages. So this plan is geared toward only 7% of the population.
2) According to the fact sheet: This is a “new program that will provide the opportunity for 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Freddie Mac and Fannie Mae to refinance through the two institutions over time“.
3) There are lenders and companies that are already successful in getting loans modified for homeowners without the intervention of the government and do not leave tax payers responsible with the tab.
My main problem with the plan is that the government should not be involved in the business decisions of banks and lending institutions and that the true responsible homeowners (the 93% who are not behind on their payments) should not be footing the bill. However, that is only a matter of opinion. The fact of the matter is that those who may truly need assistance may not be able to get it, and those who did make bad decisions may still be able to get bailed out.
As stated above the President’s new program is only available to homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae. Now I don’t expect the average homeowner to understand the significance of that statement, and I would guess that our government doesn’t really understand it either. However, the fact that the program is only limited to loans guaranteed by those two institutions means that that there will be no help to borrowers who have non-conforming loans also known as subprime mortgages. Subprime mortgages were often given to borrowers with credit problems and carried higher interest rates. While one can make the argument that perhaps these borrowers should not be helped out, one must also note that there are many cases of borrowers who were placed into so-called subprime mortgages when they really could have qualified for a conforming loan. It has also been stated that the reason it is important to prevent foreclosures, is that even borrowers who are able to pay their mortgage suffer when foreclosures in their neighborhood cause declining home values. Yet, this program does nothing to offer assistance to borrowers that perhaps have a much greater risk of facing foreclosure, which seems a little contradictory .
Furthermore, I notice that the statement equates Fannie Mae and Freddie Mac loans with responsible borrowers and conforming loans. This is misleading as well. A loan can still be considered “conforming” yet still be a stated income, low down payment or an adjustable rate mortgage. That is, it is entirely possible that a borrower who has a conforming mortgage was not really “responsible” and bought more home than he could afford.
As you can see determing the “responsible borrowers” is not as easy as the governement’s plan makes it out to be. However, even if we are operating on the assumption that only borrowers with conforming loans should be able to take advantage of the program, should all conforming borrowers be classified as responsible? Should a person who lost his job and wants to continue to collect unemployment checks be included as part of the responsible borrowers simply because he as a Fannie Mae loan? Should the Realtor or Mortgage Loan Officer whose income greatly dropped because of the economy yet refused to get a part-time job to make ends meet be helped out as well? What about those who took the path to homeownership even though they had no savings to rely on or emergency funds set aside in case the they lost their jobs or income?
Which leads me to wonder, why the sudden government interest in helping “responsible” people anyway. Should we now overlook the fact the foreclosure problem in the housing market was caused in part by the government insisting that banks make loans to less than qualified borrowers? Should we all be picking up the tab for other people bad luck or bad decisions? One thing is certain, we are probably going to see a lot more of these bumper stickers going around:
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Written by Michelle Chamberlain www.mortgage411center.com
