Homeowner Bailout


President Obama unveiled his homeowner bailout plan today.  The first provision is aimed at motivating mortgage servicers to offer underwater homeowners improved loan terms:

Servicers can receive an up-front payment of $1,000 for each eligible loan modification that meets certain criteria. The government said it would pay servicers $500 and mortgage investors $1,500 if at-risk loans are modified before borrowers fall behind. The government said it would also help pay down the principal of certain mortgages by up to $1,000 a year for up to five years if the borrower doesn’t miss any payments.

Hmmm.  Loan servicers already have an incentive to rework loans that would otherwise go into default, and for the most part they aren’t doing it.  Will a couple thousand dollars change their internal calculus?  Offhand, it doesn’t sound like enough to really make a difference — though another provision of Obama’s plan adds a stick to the carrot, by allowing bankruptcy judges to unilaterally alter mortgage terms.  So it’s possible that the carrot and the stick together will have a noticeable impact.

The second major part of the program is aimed at lowering interest rates on underwater loans:

Finance companies cannot currently refinance a loan if the homeowner owes more than 80 percent of the home’s value. But under the plan, Fannie and Freddie — which were taken over by the government last year — would be able to refinance a mortgage if it does not exceed 105 percent of the current value of the property. For example, if the value of the borrower’s property is $200,000, but the homeowner owes $210,000, he or she could still qualify for the program.

This sounds promising.  If the interest rate reductions are significant, it could provide some serious help to homeowners.  It will also help arrest the slide in home prices, which might be a worthwhile goal at this point.  It’s true that house prices are still too high and need to fall further, but Obama’s program most likely won’t have a serious effect for another six months at least, and by that time we might be at risk of house prices overshooting on their way down.  A program that pushes against that tide could end up being a good countercyclical tool.

MORE HARD-HITTING JOURNALISM

In 2014, before Donald Trump announced his run for president, we knew we had to do something different to address the fundamental challenge facing journalism: how hard-hitting reporting that can hold the powerful accountable can survive as the bottom falls out of the news business.

Being a nonprofit, we started planning The Moment for Mother Jones, a special campaign to raise $25 million for key investments to make Mother Jones the strongest watchdog it can be. Five years later, readers have stepped up and contributed an astonishing $23 million in gifts and future pledges. This is an incredible statement from the Mother Jones community in the face of huge threats—both economic and political—against the free press.

Read more about The Moment and see what we've been able to accomplish thanks to readers' incredible generosity so far, and please join them today. Your gift will be matched dollar for dollar, up to $500,000 total, during this critical moment for journalism.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.