Another Clever Plan To Further Ruin The Housing Market

Mortgage research firm RealtyTrac reported that the rate of mortgage defaults slowed to a four-year low in February, but the trend of foreclosures was still up by 6% compared with the same month last year. The federal government continues to do what it can which includes the President’s $75 billion Homeowner Stability Initiative. One of the pillars of the program is a plan that allows mortgage holders who wish to stay in their houses but cannot afford to make the monthly payments to get a modification to make their mortgages more affordable. The principle of the mortgage does not change. Only a third of the people who have entered the program qualified for permanent mortgage payments. As of January, a mere 116,000 loans had been permanently modified and another 67,000 were pending final approval to become permanent. That leaves hundreds of thousands of other candidates somewhere in the process that may never help them.

The figure that stands out is the$75 billion investment by the taxpayers which has only yielded a little more than 100,000 permanent modifications History shows that some of these people will default on their mortgages in the future because of job loss, the fact their mortgages are underwater, or other financial setback. Nevertheless, a modest number of modified mortgages are better than none.

The government may inadvertently kill the benefits of one of its programs by the actions of another. In the large federal system, this is not unheard of, but it would seem that housing is important enough so that programs to hurt home prices would be avoided at all costs.

The FHA may raise the minimum down payment that a person must make for a house with a mortgage insured by the agency from 3.5% to 5% of the total value of the loan. FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the program is modified.

Three hundred thousand fewer mortgages not approved would put a large dent in the buying power of the legions of people who might actually buy a new home. A change in the FHA policy will set back the recovery of the housing market and the government will have undermined its own efforts not matter how modest the results have been.
Douglas A. McIntyre