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Mortgage relief: Will Obama's plan help Californians enough?(Sacramento Bee, The (CA) Via Acquire Media NewsEdge) Feb. 19--President Barack Obama unveiled a $75 billion foreclosure-prevention plan Wednesday, but it's not clear whether it goes far enough to rescue California's legions of distressed homeowners. The plan, unveiled at a high school gym in Mesa, Ariz., provides $75 billion in partial subsidies to encourage lenders to modify troubled mortgages and new rules to enable more Americans to refinance. That's $25 billion more than expected. It also attempts to lower interest rates by pumping up to $200 billion into the credit markets. In addition, Obama will ask Congress to rewrite the bankruptcy laws so judges can write down the principal on bankrupt homeowners' mortgages. Obama said his program would help up to 9 million homeowners, but he acknowledged, "This plan will not save every home." Critics said the $75 billion in subsidies, while helpful, won't be nearly enough to reduce debts to levels that would be affordable for all who need relief. That's especially true in California, where unemployment has hit 9.3 percent and millions are struggling to pay for houses purchased at the peak of the market. There were also complaints about the new rules on refinancing. The Obama plan would let government-sponsored lenders Freddie Mac and Fannie Mae refinance mortgages even if they're "underwater" by as much as 5 percent -- that is, they owe up to 5 percent more than their homes are worth. That's more liberal than current rules, which generally require borrowers to have at least 20 percent in equity to refinance. But analyst Sean O'Toole of ForeclosureRadar.com said the 5 percent rule makes the Obama plan toothless in a state where the average foreclosed home is underwater by $180,000. "It doesn't do enough for people that are really underwater on their mortgage balances, and that's the biggest problem here in California," said Jeff Michael, director of business forecasting at the University of the Pacific. The program is limited to mortgages held or securitized by Fannie and Freddie. A wave of refinancing could relieve stress on homeowners and free up cash to stimulate the economy. But underwater homeowners are effectively trapped in their current mortgages. Zillow.com, which tracks home values, says 34 percent of all Sacramento-area homeowners owed more on their mortgages than the homes were worth as of Dec. 31. The state Department of Corporations, which oversees a voluntary program in which lenders restructure troubled mortgages, was also disappointed in the refinance rules. "A lot of this is going to miss us," said department spokesman Mark Leyes. "If it helps the market in general, it helps California. But it may not have as much direct impact as we would have hoped." Analyst Andrew LePage of MDA DataQuick, however, said the plan could provide meaningful assistance for California's battered housing market. If foreclosures can be stemmed, "we could see consistent signs of hitting a price bottom," LePage said. Obama released his plan a day after signing the $787 billion economic-stimulus plan -- and the same day that fresh statistics showed the depths of the housing market crisis. The U.S. Commerce Department said new-home construction fell another 17 percent in January. DataQuick said median home prices in Sacramento County fell to the lowest level in more than seven years, although January sales volumes were unusually strong. Meanwhile, FirstAmerican CoreLogic said home values fell 25.4 percent in greater Sacramento last year. Details of the Obama plan will be released March 4, leaving millions to wonder if they'll qualify for assistance. Already, some 33,000 homes have been lost to foreclosure in the eight-county Sacramento region the last two years, about 10 percent of California's total, according to MDA DataQuick. Daniel Torres Jr. of Elk Grove, who works for the state Department of Corrections, is trying to avoid that fate, but said he and his wife are falling behind on their $3,600-a-month payments. "If they could just give us something that's affordable," he said. "Just help us out on the payments." Torres was one of several state workers who told The Bee that the unpaid furloughs imposed by Gov. Arnold Schwarzenegger had pushed them to the brink financially. The furloughs are costing Torres about $650 a month, he said. A key element of the Obama plan is the partial subsidies to get lenders to modify mortgages. The lenders first would have to make concessions -- either by stretching out repayment terms, reducing interest rates or lowering the outstanding principal -- to reduce payments to 38 percent of a borrower's gross monthly income. Then the government would pay the lender a subsidy to reduce the payments to 31 percent of income. But mortgage experts said there probably isn't enough money in the program to assist all those who have lost their jobs or a substantial portion of their incomes. While the foreclosure crisis used to be a function of adjustable-rate loans that blew up in borrowers' faces, now homeowners are losing properties because they're out of work. "We're seeing more people now who have had a tremendous change in income ? loss of jobs and so forth," said Pam Canada of Sacramento NeighborWorks HomeOwnership Center, a nonprofit group that assists troubled borrowers. "They're unable to make the payment beyond a few months with what they have in their savings account." Eugene Smith of Carmichael got hit with a double-whammy. The monthly payments on his adjustable mortgage increased to $1,500 from $1,100, while income from his contracting business fell by 90 percent. He and his wife missed last month's payment. "I am under a lot of pressure, more pressure than I can bear sometimes," he said. It's also not clear whether lenders will play along with the subsidy plan. "In general, we're somewhat skeptical of the viability of these types of programs coming from Washington," said Steve Fleming, president of Sacramento's River City Bank. The bank hasn't suffered any losses on its home mortgages but has charged off 2.5 percent of its home-equity loans. Many experts applauded Obama's plan to pump another $200 billion into the credit markets, saying it could bring interest rates down. Los Angeles economic consultant Chris Thornberg criticized a separate proposal, which needs Congress' approval, to give bankruptcy judges the freedom to reduce loan balances. That would raise interest rates because it would make lending money riskier, he said. But Elk Grove bankruptcy attorney Jonathan Stein applauded the move, which would give borrowers more bargaining power with lenders. Some bankruptcies could even be avoided because lenders would be "more likely to negotiate in advance," Stein said. Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/blogs. To see more of The Sacramento Bee, or to subscribe to the newspaper, go to http://www.sacbee.com/. Copyright (c) 2009, The Sacramento Bee, Calif. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |