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Emac's Bottom Line

Caveat Emptor on White House’s Latest Housing Rescue

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With the Case-Shiller index showing house prices in 20 cities falling more than expected yet again versus a year ago, it's clear jobs and housing reform, not health reform, should have been a top priority in the early months of the Administration.

You can't be in good health without a job to provide health coverage and a decent roof over your head. Especially when housing losses vaporized an estimated $7 trillion out of taxpayers' net worth over the last five years.

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But now we have HARP 2.0, the White House’s updated "Home Affordable Refinance Program," which may not be all it's cracked up to be. Yes it will help, but on the margins. Because this is also an economic stimulus plan wrapped in a foreclosure prevention plan, not a complete housing fix.

It's absurd to think the government can use taxpayers to stop this rising tide in housing--water will always seek its own level, as will housing.

In the 28-month history of housing help, the government has only managed loan 894,000 modifications. That slow pace works out to about 32,000 per month—with an estimated 11 million loans underwater, at this rate it would take the government 28 years to refinance all those loans.

Why the slow rate? Because borrowers had to show the government, heaven forfend, income tax returns, wage statements and bank records to show their cash flow.

And doesn't that mean that there is another problem here? If a borrower has negative equity in his home, because his loan was at 100% or more of the home's value, isn't there a chance that means he initially got a "no income, no money down, no problem" liar loan? But now, HARP 2.0 says you can get a lower rate, even below 4%, without showing much about your net worth at all. What's wrong here?

Didn't studies show that a sizable number of the borrowers who got loan modifications in the president's other loan modification programs re-default anyway?

Which is why banks are now not compelled to refinance any loans at all--the press release from the Federal Housing Finance Agency (FHFA) reads “Since industry participation in HARP is not mandatory….”

The Administration says on average borrowers will save $2,500 a year with a loan modification. That will help homeowners pay down debt, or make consumer purchases. Which is why this is like a tiny tax cut. It may help stop those who may tip into foreclosure, and that's a good thing, absolutely. But it will not help the estimated 3.5 million already in foreclosure, whose homes are acting like blacksmith anvils on their neighborhoods' home values.

Anyway, don’t bother applying if your mortgage was sold to government-run housing finance giants Freddie Mac or Fannie Mae after May 31, 2009, because you won't qualify. Nor will you qualify if you were prudent and made a down payment of 20% or more. Or even if your loan was not sold onto Fannie or Freddie, again you won’t qualify.

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