Bear-ack Obama's Mortgage & Modification Plan, or lack thereof
on Friday, April 17th, 2009 at 10:52am.
I am adamant in my opinion that Obama’s mortgage plan will be a bust. It seems difficult for people to understand that:
borrowers need to be in homes they can afford, regardless of the level of rates;
home prices should (and will) fall to levels consistent with area incomes;
re-default rates will continue to rise for a host of reasons;
seems like the only mod plan that is working is the one where banks actually cut principal by a significant amount; and
it is horrific public policy to give people that have loan modifications a credit after 5 years if they have paid their mortgage on time over that period, but provide other folks like renters and homeowners who have paid their mortgage on the up and up no relief.
In related news, don't forget about all those Option ARMs that remain outstanding and that have LTVs way north of 100%, most of which are in California. The majority of those loans have yet to recast (i.e., go to a fully amortizing loan due to hitting the negam caps of 110%, 115% or 125% depending on the loan). That market is in the upper hundreds of billions of securities and another few hundred billion in whole loans. I’m sorry to be the bearer of bad news, but the pain is at the onset stages in that sector whereas it may be in the late innings in SubPrime. Rates need to stay low at least a couple / three years as a result of the impending and continuing Option ARM resets for borrowers who cannot afford their homes in the first place.
We have the predatory borrowing and negligent lending practices to thank for the nauseating volatility in the real estate, equity and credit markets over the past half decade. Unfortunately, it's only a matter of time before we repeat this experience. It may be 10 years or 20 years down the road, but it will undoubtedly happen again. In the meantime, there's another asset bubble that confortably awaits to burst - US Treasury Notes.