Editorial: A lifeline for homeowners, but not enough
Published Wednesday, Oct. 26, 2011The nation and California in particular are drowning in a home foreclosure crisis that is dragging down the rest of the economy. President Barack Obama's newest plan to help those stuck in "underwater" mortgages – owing more on their homes than they are worth – is a recognition of that painful fact.
But it won't be enough to solve the housing crisis, as he himself admitted in unveiling the plan Monday in Nevada, another state that took it on the chin when the housing bubble burst.
The best guess is that the plan will aid somewhere around 1 million homeowners by allowing them to refinance their mortgages at current historically low rates. But there are more than 10 million homeowners nationwide, 2 million in California, who are underwater.
The plan loosens rules and restrictions in Obama's 2009 Home Affordable Refinance Program that has helped far fewer people than designed. It will depend on the details, such as the upfront costs for refinancing that could eat up much of the savings, how many homeowners will sign up this time.
It's as much an economic stimulus strategy as housing relief. The lower monthly payments are supposed to free up cash that homeowners can spend elsewhere in the economy, but their mortgages will still be underwater.
As the president often does (too often for the liking of many of his allies), he has chosen the path of less political resistance. Going into his reelection campaign, it would be much riskier to champion more sweeping solutions that some are endorsing.
Economists on the left and right are calling on the nation's big banks to write down the value of underwater mortgages to market values, accepting losses but allowing people to stay in their homes. Some propose using taxpayer money to encourage banks to reduce the principal on underwater loans. Obama would have to expend quite a bit of political capital to either bully banks into write-downs or to get a requirement through Congress.
With all these attempts to ease the housing crisis, there's good reason to be skeptical because high-profile pronouncements have not been matched with actual performance.
Speaking of which (and closer to home), the state Housing Finance Agency needs to get a move on with the Keep Your Home California program. Its launch was delayed and the eligibility guidelines were quickly expanded. Even so, since starting in February, only about 7,000 low- and moderate-income homeowners have received about $128 million in benefits, including cash assistance for those who have lost their jobs or are in financial distress.
That 7,000 is only a small fraction of those in need and hasn't kept pace with foreclosures. As The Bee's Rick Daysog reported on Monday, some consumer advocates are very concerned that the state won't make a 2017 deadline to use $2 billion in federal stimulus funding for the program. Any leftover money will go back to the feds.
Agency leaders say they're confident as more banks sign on to the program – the nation's biggest, Bank of America just did in August – that the pace will pick up rapidly.
It better and soon, or they'll have quite a bit of explaining to do.
Usually, it's the lack of money that's the big hurdle. That's not the case here. It would be a travesty if red tape or bad management gets in the way of helping Californians stay in their homes.
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