Today the Obama administration announced yet another housing program.  Today’s  plan proposes to reduce the amount some troubled borrowers owe on their home loans.
The $14 billion for the program will come from the administration’s existing $75 billion foreclosure-prevention program. Â Now under-water homeowners will get huge principal reductions and new loans backed by the Federal Housing Administration.
The plan will also require that mortgage companies participate in the administration’s existing foreclosure prevention program with consideration to slashing the amount borrowers owe. The lenders will get incentive payments if they do so.
The plan also includes three to six months of temporary aid for borrowers who have lost their jobs. There will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.
Will this, the latest and greatest government housing rescue program really work? Well, so far all the prior Obama administration housing rescue plans have been dismal failures. Personally, I don’t see this current plan making a significant difference.
Let’s face facts … many people purchased homes way out of line with their realistic budgets. Plus, a large percentage of recent homeowners who had their home loans modified are once again behind in payments.
What is so wrong with renting? It seems that all these government programs are doing is prolonging the housing recovery.
In my 10-1-08 post entitled #1 EZ Fix to The U.S. Housing Market I stated:
“For the government to come in with this huge bail-out now, would just prolong the housing decline. I’d rather see the government stand aside and let the market forces determine the true area average home selling prices.
“For those who think a government intervention is the only way out, I say do it without direct taxpayer money. The undisputed key to this recovery is housing. If the government truly wants to ignite a fire under the housing market, I personally would propose a very simplistic approach that would have immediate results.
“The government should pass a bill that allows any home purchaser, owner-occupied or investor buyer, who buys a residential property within the next two years and holds that property for a minimum of three years (and a maximum of ten) to be free of federal capital gains taxes upon selling the property.   The potential, tax-free profits on my idea would be a huge incentive for investors to jump back into the residential housing market. This increased demand would clear the built up housing inventory in a matter of months for most areas.â€
It’s been a year and some change since Obama’s been in his presidency, and at this point it seems like he’s just throwing some of these things out there. Just like you said in this post, we’re missing the key simple things. What about just the principal? Nix all those other fees and let’s see what happens!
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Economics is albeit man-made but also natural. I say the government stops interfering with the market and let those magical hands do their work. If we keep interrupting the natural developments of the economy, we may end up actually extending the period of actual recovery.
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