The Obama housing plan is aimed at “rescuing families who played by the rules and acted responsibly…it will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans.” That’s direct from the President.

Well here’s the problem: the rules have changed.

During the height of the housing boom there were plenty of borrowers who listened to mortgage brokers, mortgage brokers who told them that even though the loan seemed unaffordable, well the value of the home would increase, so they could just refi later. There were also plenty of borrowers who knew full well that they were biting off more than they could chew, but who saw low low rates and figured they’d take a gamble. These were not all the dreaded “speculators” (real estate investors). And isn’t everyone, by the way, who buys a home a real estate investor? But I digress. I just want some clarification as to what it means to play by the rules.

The Obama housing plan looks to help out “at-risk” borrowers who can no longer afford to make their monthly payments. It requires any lender (bank) that receives TARP money to participate. It gives other lenders the incentive of a government matching program to help offset the losses of lowering the monthly payments. It also allows conforming loan holders to refi, even if they don’t It’s a start, but I’m afraid it won’t address the full force of this housing crisis.

First, I just don’t like the idea, whether it’s presidential pontificating or not, of claiming that some borrowers are irresponsible and some are not. Plenty of Americans have poured their money into the stock market at various times, trusting their retirements to a risky game, and most of us now are the losers. Does that mean we were irresponsible in our choice? Because the market usually goes up??

A lot of people bought into a booming housing market, not realizing that the fall would be so hard and so fast. I think plenty of borrowers were personally irresponsible in this particular investment gamble, because they didn’t consider the fact that home prices could fall. Others pulled far too much equity out of their homes, refinancing to get cash, again not considering that prices could fall. But if that’s the case, then nobody should be eligible for this plan. To say that only investor “speculators” are irresponsible is bunk. Lenders were irresponsible, of course, but it takes two to tango.

Second, the mortgage rate reductions are only temporary, five years, “after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification.” So are we just putting off the inevitable and looking at more defaults down the road?

Third, this plan really penalizes borrowers with jumbo loans, only allowing the refi option for conforming, Fannie Freddie-owned or guaranteed loans. I guess the theory behind that is that we don’t want to reward rich folks. But during the height of the housing boom, the median price of a home in California was over $500,000, higher than the conforming loan limit at the time, so not Fannie and Freddie loans. California represents a huge percentage of the total foreclosures in the U-S, and home prices there have fallen around 40% from their peak, so clearly, not allowing jumbos is going to affect a lot of borrowers who could have really benefited from a refi.

I’m just concerned about who is going to qualify for this modification plan and who is not. And I’m more concerned that there are an awful lot of borrowers who are so deep in trouble that they don’t even want the modification. Seriously. I’m hearing more and more about borrowers walking away because they don’t want to spend the rest of their lives paying for a home that will net them nothing in the end.

I applaud the administration for giving us a plan that is broader than most of us expected. I don't envy their job in trying to fix this mess.

As I've always said, some people can be helped, and the government can throw a lot of money at the problem, but in the end this will have to be a painful correction where many borrowers lose their homes, many more lose home equity and prices bottom when they simply become too attractive for new buyers to stay away.

• Housing Plan: $275 Billion to Help 9 Million Families

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