The Home-Account Pulse – Week of February 25, 2009
Reading the newspapers, watching TV, and searching the Internet you’d think the mortgage crisis is close to being solved. Sadly, that’s not the case this week. While the Obama mortgage plan seems to be well intentioned and will probably lessen the severity of the recession it is still lacking in details. But that’s not all. Even at its most optimistic, the Obama plan still portends another 2+ years of pain for American homeowners. Interest rates appear to be down but mortgage fees are actually higher, approval rates are a third of what they were a year ago, and mortgage modification rates are abysmal. In his address to Congress President Obama pointed to new government policies that will save homeowners an average of $2,000 per year in interest payments yet charge an average of $3,500 in closing costs (the part he didn’t mention), pushing break-even for these new loans to 2011.
Maybe things are changing but we fear they are not. That is because all the plans to date have been based on incentives grounded in the same old inefficient mortgage and banking industry power structure. There is no streamlining, no shortcuts, no disintermediation, which means that there is no real change.
Things are simply not as they seem. The Hope Now Alliance of the 20 largest loan servicing companies organized by then Treasury Secretary Hank Paulson to facilitate loans modifications has done just that for tens of thousands of homeowners, but with what result? A recent study of 21,000 loan modifications from November 2008 showed that 35 percent resulted in lower payments (usually the goal of a loan modification), 18 percent of payments stayed the same, while 47 percent of payments on the modified loans actually went up! What’s the point of loan modifications that don’t help homeowners? They generate fees.
Systems tend to snap back as they were before and we fear that’s what will happen here, too. And whether reform is temporary or permanent it will take longer to have effect than most people – and most officials – believe. There is more bad news to come, more shoes yet to drop before American homeowners can breath easily again. And that means we still need more and better good ideas, grounded in realism and experience, to solve these problems.
That’s how we see it this week at Home-Account—your key in always having the best mortgage.
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