President Barack Obama’s latest proposal to help struggling homeowners—to be followed soon by a student debt initiative—isn’t likely to be much more successful than previous efforts. An analysis by MF Global’s Washington Research Group estimates the plan to make it easier for homeowners to refinance their mortgages will target just “600,000 to 1 million more refinancings of underwater borrowers. … For those who get HARP refinancings, this offers economic help. But we don’t see how this turbo charges the economy.”
If that analysis is accurate, this housing relief effort by the Obama White House won’t accomplish more than previous attempts. Back in early 2009, Obama promised to help “as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.” But just 816,000 homeowners have received permanent mortgage modification through federal housing programs.
That’s small potatoes. Tiny potatoes, really. According to CoreLogic, some 11 million, or nearly a quarter, of all residential properties are in negative equity. Another 2.4 million have less than five percent equity. More than 4 million mortgages are at least 90 days delinquent or in some stage of foreclosure, with another 3.4 million mortgages likely on their way during the next year, according to some analysts.
Sure, any little bits helps. But it’s hard not to conclude that this meager plan is little more than an effort in political theater, a campaign-season sop to worried middle-class voters and the Occupy Wall Street movement. Given the small scope of the housing plan, it’s likely that the student loan piece will be little more than a recycling of previous proposals. All in all, just enough to garner positive headlines but not so much as to scare taxpayers or bankers. Obama wants to be seen as compassionate yet fiscally responsible. A little bit OWS, a little bit Tea Party.
Economists, however, do have some ideas that might help. One comes from Columbia University’s Christopher Mayer, which would allow every—more or less—current homeowner with a GSE mortgage to refinance to a new mortgage with a 4.2 percent rate or less. Mayer estimates mortgage payments would fall by about $70 billion for 25 million borrowers (vs. Obama’s 600,000), or nearly $3,000 in average savings.
But some people just can’t afford their underwater homes, even with lower rates. In those cases, foreclosures, ASAP, are the answer. Or at least more of an answer than what Obama is offering.