To most Americans, homeownership is an entitlement almost akin to a constitutional right.
Homeownership is as tightly woven into our collective DNA as freedom of speech or our inalienable right to channel surf.
Somewhere between Thomas Jefferson and Alan Greenspan, the dream lapsed into a nightmare. For Americans who purchased their homes in the past five years, homeownership has become the financial equivalent of the Roach Motel.
Homeowners can check in, but they can’t check out.
The Obama administration has offered a host of solutions in an attempt to hold back the swelling tide of foreclosures. Despite their multitude of remedies, however, most homeowners are still so far under water, they need a snorkel to survive.
As Foreclosures Soar
According to RealtyTrac, Inc., the Irvine-based research firm, foreclosures are expected to climb to 4.5 million this year, up from 2.8 million in 2009. By anyone’s measure, especially in light of the increasing number of defaults, the administration, along with key lenders like Wells Fargo and Bank of America, has fallen far short of foreclosure prevention goals.
The Obama administration has just announced further programs designed to help U.S. homeowners avoid foreclosure, including subsidies for borrowers who owe more than their home is worth. The plan expands Treasury Dept. and Federal Housing Administration efforts, and uses funds from the $700 billion Troubled Asset Relief Program (TARP). The President’s latest plans were revealed after the administration faced a week of criticism from lawmakers and watchdog groups who say the government hasn’t helped enough homeowners stave off foreclosures.
Now the Obama administration says it will overhaul the way it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for millions of borrowers who are unemployed. Under the plan, lenders would have to reduce the payments to no more than 31 percent of a borrower's income, typically the amount of unemployment insurance, for three to six months. In some cases, the lender will be compelled to allow a borrower to skip payments altogether.
As part of these latest reconfigurations, the Treasury would help unemployed homeowners reduce mortgage payments for at least three months while they look for work. If homeowners don’t find a job in that time, or if they find a new job at a lower salary, they will be evaluated for further assistance.
These new initiatives will be put into play over the next six months and be funded out of the $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. Administration officials promise that no new taxpayer funds will be needed.
But He Is Largely Helpless
To date, fewer than 200,000 borrowers have received permanent loan modifications under the President’s $75 billion marquee program, known as Making Home Affordable. Meanwhile, there is a growing backlog of distressed borrowers awaiting help from their lenders, which threatens to undercut the government’s Herculean efforts to stabilize the housing market.
With millions of foreclosures projected over the next few years, the administration is engaged in a form of financial triage. Unfortunately, it’s like trying to put a band-aid on a bullet wound. No matter what the President does, the patient – in this case, the housing market – is still a goner.
In this latest effort, the administration has turned its focus on unemployed homeowners who have struggled to qualify for the government’s mortgage relief plan. In providing availability of forbearance to these homeowners, the government hopes to buy them more time to find a job.
Despite his best intentions, the President can’t conjure new jobs for these unemployed homeowners or assure that their income will remain unchanged, even if they become reemployed. The President is powerless to prevent the market value of these homes from continuing to slip.
Politically, the President knows he can’t afford to sit on his hands while millions more lose their homes, especially as the bloody specter of the mid-term elections approaches. But he has to realize that no matter what he does, it’s like trying to stop an elephant with a pea-shooter.
The housing market will run its course, and there’s not a darned thing the President or anyone else can do about it.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
