Aiding ‘Underwater’ Mortgages

I will reserve comment until I read the details of the plans when they are released Wednesday. But in the WSJ, we read:

“Economists and government officials say the country’s economic woes can’t be fixed until the downward spiral of foreclosures and falling home prices come to an end. Devising a plan that helps without rewarding banks for making bad loans or costing too much has proven hard for both the Bush and Obama Treasury Department.

One contender would reduce Americans’ home-mortgage payments, people familiar with the discussions said, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers. As part of a new national standard for modifying loans, government officials would make such a plan available to people who are still current with their payments but in danger of defaulting.”

Loan mods seem to be the key idea:

• Fannie and Freddie loan-modification holds monthly housing payments to 38% of pretax income. Possible change? New formula takes this down to 31%;

• Help underwater homeowners — who owe more than their houses are now worth — to refinance;

• Allow judges to modify mortgages during bankruptcy proceedings;

• Voluntary temporary halt on foreclosure;

• Possible Bank of America, J.P. Morgan Chase and Citigroup temporary moratoriums for owner-occupied residences.

• Mortgages securitized to investors won’t be included in the moratorium;

• Citigroup foreclosure moratorium eliminates some restrictions;

• J.P. Morgan’s new moratorium would last through March 6 and only includes loans owned by the bank — about 25% of the $1.5 trillion in mortgages J.P. Morgan services.

• Bank of America’s moratorium lasts through March 6 and includes mortgages owned by the bank and its Countrywide mortgage unit.

Of course, none of this addresses the key issues: Too many people live in homes they cannot afford, purchased with loans they cannot service. Oh, and home prices are STILL too high by historical metrics. . .


Treasury Looks to Aid ‘Underwater’ Mortgages
WSJ, FEBRUARY 14, 2009, 12:24 A.M.

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