Now comes the latest administration effort: the Home Affordable Refinance Program, a revamped mortgage refinancing program to help as many as 4 million homeowners with government-backed mortgages who are underwater -- they owe more than their homes are worth -- but still are current on their mortgage payments and who so far have declined to participate in the existing program. The revamped program would make it easier for them to refinance and reduce their interest rates.
Sounds good but banks still have to go along. Good luck with that.
"Probably the single greatest cause of the financial crisis and this brutal recession has been the housing bubble that burst four years ago," President Barack Obama said in an appearance in Nevada last week. "Since then, average home prices have fallen by nearly 17 percent. Nationwide, more than 10 million homeowners are underwater …
"When a home loses its value, a family loses a big chunk of its wealth. Paying off mortgage debt means consumers spend less, businesses make less, and jobs are harder to come by. And as long as this goes on, our recovery can't take off as quickly as it would after a normal recession."
The situation is further complicated by the unemployment situation -- 9.1 percent nationally -- and the number of foreclosures, which further depresses home prices, making refinancing that much more difficult.
Obama admitted the new program will not solve the problem "given the magnitude of the housing bubble and the huge inventory of unsold homes" although the new scheme allows homeowners to refinance no matter how low their home values have fallen, eliminating the need for appraisals and lifting extensive underwriting requirements, including the current 125 percent loan-to-value ratio cap.
"If the banks are willing to lend, the revamping of HARP should save money for many homeowners whose declining equity has kept them from lowering their payments," Chicago-area loan officer Caise Diab said.
"This probably won't stop the stem of foreclosures though. Only job growth will."
The Wall Street Journal reported Goldman Sachs economists estimate the program could save homeowners $24 billion annually and researchers at Columbia Business School said most of the benefits would go to working- and middle-class homeowners with mortgages of less than $200,000. Of course that means banks, their shareholders and even the Federal Reserve make less money, hence banks' reluctance to go along.
House Democrats aren't happy either.
"It's far too little. It's just baby steps," Rep. Dennis Cardoza, D-Calif., told The Hill. "They're not getting it."
Cardoza estimated as many as 11 million homeowners could use some help.
"Economists warn that the housing crisis is 'ground zero' for the economy and jobs, and this is only one modest step towards addressing it," Rep. Elijah Cummings, D-Md., said.
Economist Peter Morici, of the University of Maryland, warned the program could do more harm than good, creating yet another credit crisis.
"He [Obama] proposes to let homeowners, still up-to-date on their mortgages, refinance no matter how much the value of their home has fallen below what they owe and without cumbersome underwriters checks -- home appraisals, and rigorous credit and income checks," Morici said in a statement. "That is a prescription for more failed loans and another crisis in mortgage finance down the road or huge losses for U.S. taxpayers that can only be accommodated by even bigger deficits and printing money. …
"Now the president proposed to … let folks who may earn $80,000 a year and owe $200,000 on their home qualify for lower interest mortgages without checking if they have been using the ATM machine to pay their mortgages or otherwise running up credit card debt and auto loans. No checks will be required to ensure applicants have not had a recent dip in income owing to a layoff -- and we still have lots of those, if the administration had not noticed.
"The impact on consumer spending from this additional credit won't be large enough to be worth the risk -- this new program would perhaps, though not likely, refinance as many mortgages as previous efforts and those did not lift the economy much."
The S&P/Case-Shiller Home Price Indices show a dim ray of hope, reporting U.S. home prices in 10 of the 20 cities covered rose 0.2 percent from July to August and prices in 16 of the cities were ahead of last year, with Detroit and Washington posting the biggest gains, 2.7 percent and 0.3 percent, respectively.
"Nationally, home prices are still below where they were a year ago," said David M. Blitzer, chairman of the Index Committee. The brightest spots, he said, are in the Midwest where Chicago, Detroit and Minneapolis have been gaining traction since May.
The Department of Housing and Urban Development and the Commerce Department reported sales of new family homes in September were up 5.7 percent from August but off 0.9 percent from year-ago levels, while sales of existing homes were off 3 percent in September but 11.3 percent ahead of September 2010.