The mortgage plan is revealed

U.S. Sets Rules for Mortgage Modifications, 2% Mortgages

March 4 (Bloomberg) -- The Obama administration set loan modification guidelines for its $75 billion homeowner rescue plan, agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates to as low as 2 percent.

2 percent? sign me up! Sadly, I do not think I'll qualify, as I am current in my mortgage payments and have chosen to not live beyond my means. However I am troubled by all of this government intervention in the mortgage market. Though I don't think that's the kind of "troubled mortgage" candidate they're looking for.

The voluntary initiative, announced on Feb. 18, would require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.

Here's a really stupid, naive question: how does one document the ultimate financial hardship--losing one's job--by providing pay stubs and tax returns?

I hope mentioning the fact that Fannie and Freddie will be relied upon to refinance these loans is not meant to inspire confidence.

“This is not going to save every person’s home,” presidential Press Secretary Robert Gibbs said during a briefing. The plan offers help “for those who have played by the rules.”

Mr Gibbs, I played by the rules. Can you please be more specific?

President Barack Obama’s initial proposal, the biggest federal foray into real estate since the Great Depression, ignited criticism from Republican lawmakers that the government would end up subsidizing homeowners who are financially capable of surviving the economic slump on their own.

It would be encouraging to see that the GOP has lately re-discovered that one of their founding principles used to be opposition to Big Government if it weren't so unabashedly pathetic.

Lenders likely won’t be able to offer the loan modifications for a few weeks as they update their technology to process the applications, a mortgage-industry official said on a conference call today with Obama administration officials.

Not surprising since they've laid off virtually all of their employees.

Obama is seeking to curb a jump in foreclosures that, along with a drop in consumer credit, is lowering property values, dragging down the economy and keeping prospective homebuyers away. The housing market lost $3.3 trillion in value last year, and almost one in six owners with mortgages owed more than their homes were worth, according to a report last month by Zillow.com.

“This plan will help make home ownership more affordable for 9 million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans,” Treasury Secretary Timothy Geithner said in a statement.

Please somebody--anybody--show me where it is written that housing prices are only allowed to go up. I'm sure it's written right under the rule that states certain banks and insurance companies are "too big to fail".

For a loan modification, lenders would have to reduce the mortgage payments to no more than 38 percent of the borrower’s income. Then, the Treasury would share the cost for lenders to cut that debt-to-income ratio to 31 percent, the government said.

The modifications would allow a lender to drop the interest rate to as little as 2 percent to achieve the ratio, and if necessary, extend the term or amortization of the loan to as long as 40 years. If more effort is needed, lenders can forbear the principal and in some cases forgive, or reduce, portions of the principal altogether, the documents show.

Sounds like an excellent incentive to work as little as possible.

The proposal, Garrett said, may violate requirements that homeowners put up at least 20 percent of the appraised value of a home or carry mortgage insurance.

“Due to falling home values, many of the potential applicants for Treasury’s foreclosure mitigation refinancing plan will now find themselves” below that level, Garrett said. “There is no specific language under this title that provides the regulator of these two entities any discretion for when or how to apply this requirement.”

The problem with making stuff up as you go is that you often run afoul of the rule of law--not that that matters too much to our current administration. They're acting "for our own good" so there's nothing to worry about. Paging unintended consequences...


At least some vacant houses in Florida are being put to good use:

Kids Party in Foreclosed Homes, Leave Wake of Vandalism

As one astute commenter at the bottom of the article put it, ""These kids DO own these houses and will be paying for them for generations...!"