With home prices still falling, new mortgage delinquencies rising again, millions of mortgages already in the foreclosure pipeline, and consumer confidence in the housing market near nil, President Obama is expected to include some new housing fix in his post-Labor Day speech to the nation on jobs and the economy.
While several ideas have been floating around Washington, the one getting the most traction is a new mortgage refinance program, helping more borrowers take advantage of today's near-historic low interest rates.
Sounds good, no? No.
Let's start with the very basics.
Refinance programs already exist, like the Home Affordable Refinance Program, which allows borrowers with loans from Fannie Mae and Freddie Mac with loan to value ratios of up to 125 percent to refi. There's also the FHA "Short Refi," which requires the lender to write down principal on the loan. The HARP program has refinanced less than a million loans, and the FHA program never really got off the ground because the FHFA, overseer of Fannie and Freddie, won't let them participate.
So back to the drawing board, except the drawing board is increasingly cloudy. The trouble is that the Administration will not want to do anything that would require enacting any legislation, given how cozy they all are with Congress these days.
"That means any type of bold program will be more about politically attacking Republicans than about helping housing," says Jaret Seiberg of MF Global. "By contrast, a more limited announcement is something that regulators could implement. That would have a higher probability of enactment even if the impact is less."
That would mean some kind of expansion of the existing programs, like dropping the LTV on the HARP program and letting delinquent borrowers into the mix as well. You'd also have to eliminate all the lender fees.
Citi analyst Josh Levin is skeptical any of these proposals would spur a massive refi wave. "Of the 752,000 homeowners who have done a refi through HARP, 93 percent had LTVs in the 80 percent -105 percent range and only 7 percent had LTVs in the 105 percent to 125 percent range, suggesting that homeowners with negative equity simply aren't interested in refinancing."
There would also be no incentive for lenders to do refinances if they don't get any fees, Levin adds. And of course you have to decide who gets the refi's. The running idea is that everyone gets a refi and that not only helps the housing market but juices the economy by giving consumers more spending money. The trouble is that it's just not practical. It would cost too much and take too many resources that the lenders/servicers don't have. And that's the trouble with most of the ideas floating out there for another government bailout of the housing market. Take it from the former Assistant Treasury Secretary for Financial Institutions, who helped design the government's original $75 billion mortgage bailout, Making Home Affordable, and its many moving parts.
"It's unfortunately incredibly hard to get anything done from the concept of policy to actual implementation," says Michael Barr. "All barriers in the market end up causing huge problems, the basic issue, for example of having sufficient documentation for the modification program ended up being a big issue, when it didn't need to be. So very small problems in the market, capacity problems among the mortgage services, failures to implement policy at the servicer level, basic blocking and tackling can make a huge difference going from policy to action and that's just in the areas where the government has full control over the problem."