Obama’s New Mortgage Program…..Yeah or “Neigh”?
“You have shown me the manure now show me the pony”. I believe this was a favorite saying of Ronald Regan. The manure is clearly visible with just a glance at the state of the current mortgage/housing environment. This is what a non free market approach looks like. It’s a managed crisis. Now it’s time for me to introduce to you the pony.
Welcome Mr. President Obama. That’s right. If you voted for him well then you have to own it for now. He is loaded with manure. Today the announcement of a new mortgage program is in the offing. Am I supposed to be impressed or should I play stupid like most people and jump for joy over progress? Is it a new program or just a tweak of an old failed program? I can’t wait! Sorry, the word is already out. It’s the old HAMP refy program whereby the appraisal is no longer required.
This is going to entice people stuck significantly underwater on homes to stay in denial and continue to manage the debt service and do nothing about the problem. As Americans should we really care if the property is underwater fifty percent or more? Should you really do the right thing and just keep paying the mortgage, the taxes, the insurance, and all the upkeep on a property that you may never see the light of day on? It’s a question that you have to ask yourself.
Managing the crisis is good for the big lenders and the government. I have blogged on this issue many times in the past. Dragging out the crisis allows for earnings of the companies to cushion the blow and it also allows the real estate markets to gradually deflate. Unfortunately a solution without a free market fix will also resemble the banking system of Japan form the late 1980’s. Japan’s markets have been stagnant for years because the problem was “managed” much like our housing crisis is being handled today. Go look at a chart of Japan’s stock market from 1987 to date and tell me I am wrong.
The homeowners are going to seek to achieve a reduction in debt service but they will still be personally liable for debt that way exceeds the home value. You can call the new refinance process a reaffirmation of the debt as well. This will have other legal ramifications that will aid the lenders and the government. Should I say Beware or maybe just that this is another way Obama is going to show you some love baby! The end result for the tax payer will be more contingent liability for the GSE’s to shoulder as the underwater properties are refinanced.
To help clarify this issue further we cannot mark time and we must consider the consequences of a further real estate market decline of 15-20% over the next couple years. There is clearly a supply and demand imbalance in our RE market. We all see this. What is the reaction going to be when further home value erosion pushes the folks excited about carrying the debt to the true realization that they can never get out from under it?
This is already happening with past HAMP refinance applicants. The phone has been ringing and all you have to do is listen to your customer. They will tell the story. We have had many people over the past several months call that have stated that they went through a HAMP refinance. The overriding message has been that they now want to do a short sale because even with the reduced payment from the refy they see no way out of their predicament. A recent client in his thirty’s told me he wanted to get married and start a family and didn’t want this baggage with him when he turns forty. Again, it’s a personal choice of how to solve the problem.
Personally I would love it if everybody signed up for a refinance and paid the debt to eternity. My investments would rise and well who cares. The reality is that a managed problem can only be managed for so long. I would caution anyone that is underwater on a property to do their homework. Consider a short sale. We welcome you to visit our site and check out our free video at www.thenegotiatedsolution.com .
Expert attorney let solutions with permanence do exist.
Blogging from the front line of the housing crisis.
GHunter
