President’s Plan Short on Details Big on Hope

I just read the executive summary of President Obama’s Homeowner Affordability and Stability Plan. After getting through the smoke, all that’s left is hope. The way the plan stands now, it is no more than a psychological ploy to make people hopeful. I don’t see how it can be executed anything soon.

I really struggled with whether I should write this article. It’s a bit of a rant, but I’m frustrated with politicians grandstanding instead of working to solve problems. Ah, what was I thinking?

I was hoping for a real plan that would deal with some the issues we are all facing today, like falling prices and mortgage money availability. Instead, we get a plan for increased funding of what are essentially government owned mortgage companies – Fannie Mae and Freddie Mac.

Freddie Mac and Fannie Mae make out great. Here are some quotes from the executive briefing:

Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.

Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.

Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.

So the bailout of Fannie Mae and Freddie Mac continues but it’s going to cost more. The briefing states that these moves are designed to “maintain mortgage availability.” Well rates are currently very low, but availability is not. So, if we maintain the current rates, there’s no progress.

The conditions for home owners to stay in their homes and modify mortgages are very vague, but by the time the rules are written, most struggling homeowners will not make the cut and may not want to. They require government / lender cooperation. Why would the mega lenders choose to do anything other than accept the payouts they are currently receiving from Uncle Sam. Here’s what the “take” has been to date:

So the plan for homeowners is less than the amount given to Citibank and Bank of America to date. Wow.

The briefing also touts the mortgage mitigation program designed by the FDIC. This is the program used at IndyMac that has resulted in 50% default rates on the workouts. Less hope they learned something.

I’m slowly resigning myself to the belief that the market will fix itself through the efforts of individuals and small businesses. Politicians will continue to grandstand and give out money to those who contribute most to their campaign coffers and offer the best payback after they leave office.

In the meantime, people in Arizona, California and Florida suffer. Everyone who owns Daytona Beach and Ormond Beach real estate has seen the value of their homes fall way too much. The market will adjust in the end and we’ll be OK – until the next time.