Random Thoughts on the Stimulus Package, Obama's Homeowner Affordability and Stability Plan, and the general state of the mortgage world.

Just because the government says you can do it doesn’t mean you will really be able to.  Anyone remember the relief that was supposed to come through the “Hope for Homeowners Act”?  The Bush administration’s answer to help those who were facing foreclosure refinance into more affordable FHA loans?  It worked so well that the new Obama administration is still trying to tackle this very problem every day.

The Homeowner Affordability and Stability Plan is designed to give some people relief from the strain of their mortgage payment.  Those who qualify would be able to modify their loan to a lower interest rate and a lower payment—it would not reduce their loan balance.

The government is offering incentives for both borrowers and lenders to participate.  However, I’m not optimistic at this point that the plan has any teeth.  The real rub will come in two ways.  The first way is that your bank, who you make your mortgage payment to, probably does not actually own your loan, they just service it.  The sold it as a package with other loans in a mortgage backed security, MBS.  So who owns your loan?  The hundred-thousand or so people whose retirement plan decided to invest in the MBS.

The second way is that the lenders who do agree to modify the loans will have to agree to share in the cost of reducing the interest rate.  So we have to get lenders or loan owners in these MBS’s to agree to lower their return on investment and share in the cost of the modification.

There is also the problem of implementation.  Who decides if you qualify?  The lender, the MBS owners, Fannie Mae and Freddie Mac, a new government agency, or…?  I could be off base with my pessimism and I hope I am because I do want health in our economy, especially in our housing market, I’m just not sure this plan is the answer.

We will know more complete details when formal announcement of the plan comes March 4.  But even when the plan is unveiled it will probably take months to implement.

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