Let's hold off blaring the triumphant trumpets just yet for President Obama's plan to allow holders of underwater loans to refinance at a lower rate through revisions in the Home Affordable Refinance Program.
What this change does is amend the loan-to-value ratio in a refinance. By removing the cap on how upside-down you can be, it will allow more people to avail themselves of the lower interest rates out there. You still will owe more than your house is worth, but you can pay less for the privilege.
Here's what the proposed plan doesn't do:
1. Reach many people.
The only homeowners who will qualify are those who are current on their underwater loans and have loans that are backed by Fannie Mae and Freddie Mac. (No jumbo loan holders or those with mortgages backed by the FHA or the USDA.) That's an estimated 800,000 homeowners who can avail themselves of this. To put things in perspective, most experts say there are between 8 million and 9 million people in the foreclosure pipeline -- and some put that number as high as 11 million. So 800,000 is hardly a game-changing number.
It is, perhaps somewhat ironically, about the same number of homeowners that HARP has helped to date. When the program was announced in 2009, we were told it would help 4 to 5 million underwater borrowers. To date, just 838,000 homeowners have been able to refinance through HARP. So even if this new tweak doubles the number of people helped, it's still just a fraction of the number of people in trouble.
2. Reach the people who need it the most.
To qualify, you can have missed only one mortgage payment in the previous year and none in the past six months. The group being targeted here are those who are potential strategic defaulters -- folks who go to sleep at night calculating whether it makes financial sense for them to just walk away. They have demonstrated that they can afford the loan because they are current on their payments.
The people who are not being helped here are the ones who can't afford their mortgages anymore. These are the people at risk of losing their homes because of job loss, income reduction, illness, divorce or adjustable rate loan resets.
So to recap: If you are heading for foreclosure because you choose to be, this could change your mind. If you have no choice in heading for foreclosure, tough noogies to you.
3. Reduce anyone's principal loan amount.
If your house is worth $200,000 and your loan amount is $250,000, you will still owe the bank $250,000 -- just at a lower interest rate than what you originally signed up for. The underlying assumption here is that the housing market will recover sufficiently so that in a few years you will no longer be upside down on your loan -- or if that doesn't turn out to be the case, Obama won't be running for re-election anymore and you become the next guy's problem.
4. Help the unemployed.
The days of stated income -- or no doc -- loans are long gone. Consider them something you'll tell your grandkids about, along with cell phones without cameras. To qualify here, you'll need pay stubs, W-2s, tax returns and other documentation. And of course if you don't have a job, you won't likely be able to refinance your home into a lower-rate loan.
Here's a little salt in the wound: Many long-term unemployed keep themselves afloat by working multiple freelance jobs. This puts them in the self-employed category -- and even if they've managed to stay current on their mortgage, qualifying for the HARP relief would prove difficult because of their fluctuating income.
So the bank would rather keep them at a higher interest rate and wait for them to stumble than let them refinance into a lower interest rate. The fact that they have been making their payments faithfully doesn't matter. The tweaks to HARP don't tweak in the direction of the unemployed.
5. Pump more money into the economy.
The underlying logic behind this measure is that the money that those 800,000 lucky homeowners aren't spending on their mortgage each month is money they'll spend on other things -- eating out, traveling, shopping -- and that such spending is good for the economy.
Sorry, but this one has me laughing all the way to the credit union, which is where I suspect most of those homeowners will be headed too. First of all, their numbers are just too thin to make a statistical difference. This isn't a "jump-start the economy" measure by a long shot. At best, it will allow a proverbial handful of homeowners to splurge on the occasional Friday night pizza, assuming there is enough left over from the "windfall" savings after they pay their health insurance and grocery bills.
This Italian villa, built in 1924, is available for the first time in 30 years -- and for $9.5 million less than its original ask. The 7.39 acre estate offers coastal and valley panoramas. Features include a pool, guesthouse, tennis court, Japanese garden and three gated entrances.
Exposed beams and glass doors, leading to a porch with coastal views, add luster to this ornate interior.
Location: Corona Del Mar, Calif.
Price: $17.995 million
Sq. Ft.: 7,251
This soft contemporary presides majestically over coastal cliffs. Walls of glass give the panoramas full advantage while three stories of outdoor living go even further to celebrate the residence's stunning location. But as exceptional as this property is, the owner may have asked a little too much at first -- or more than just a little: The home is $10 million cheaper than originally listed.
Location: Kihei, Hawaii
Price: $17 million
Sq. Ft.: 2,337
The fact that $17 million brings you just two bedrooms in the case of this stunner speaks to how expensive Hawaii beachfront really is. And just think: Before the home's $5 million price cut, two bedrooms here cost significantly more.
Location: Paradise Valley, Ariz.
Price: $15.995 million
Sq. Ft.: 17,015
Counting the residence's guesthouses, this property offers 35,000 square feet of covered space. Throw in the 21-car garages, and you've got to wonder: Was the original owner playing sultan? If so, the act's up -- this home has been foreclosed on. Recently, its handler cut the price by $2 million.
The home boasts high-tech security and sound equipment along with a 13-seat mahogany theater, solar-heated pool and solar-electric generator. There are also two swimming pools, including the one pictured at left.