Home-Account.com

While most of the policy components for a housing recovery have been identified and defined, this week shows little real action beyond the Federal Reserve’s continued efforts to drive down interest rates.  We understand that implementing new policies that cost hundreds of billions of dollars takes time but continue to fear that not only is it too little too late, but that the Administration’s emphasis continues to be too much on Wall Street and not enough on Main Street.

While there is enormous interest from homeowners in restructuring their mortgages, none of the major banks yet have in place restructuring programs compliant with the Administration guidelines.  Mortgage loan funding, while inching up, is still meager.  This week new guidelines from Fannie Mae, Freddie Mac, and FHA come into effect raising fees and requirements thus making loans more expensive, not less.  These changes may not have much effect in many markets since some lenders implemented them weeks or months ago.  And all the while housing prices continue to drop, putting more homeowners under water.

If change is going to happen, spurring the home market, it would be nice if it would happen a bit more quickly, please.

cringely Pulse Pulse

This is the week U.S. Treasury Secretary Timothy Geithner attempted to put to rest the problem of toxic Collateralized Mortgage Obligations, creating a system to take them off the books of U.S. banks by selling them to public-private partnerships. The plan is too complex to explain here but its underlying goals are clear, to save the banks and arrest the fall of U.S. housing prices.

This follows last week’s dramatic move by the Fed to drive down interest rates by directly purchasing mortgage securities.

Alas, while market will probably greet both plans with a roar it seems doubtful to Home-Account that they will have significant success over the long term.

But wait, there’s more! Geithner also needs a way for banks to improve the book value of assets they can’t sell or choose to retain. To accomplish this we see coming modification of the mark-to-market rule that helped spark this credit crisis last summer.

We expect the Treasury, Fed, and the Financial Accounting Standards Board will come up with some kind of “don’t ask-don’t tell” system for valuing these assets that will give lip service to mark-to-market while practically returning asset valuations to the same murky place they’ve mainly lived in since 1937. Again, the market will soar, buoyed by a dubious system of accounting with two sets of books – the essence of non-transparency.

While these efforts will hopefully create at least a bottom for the housing market, they seem intended far more to help banks than to help home owners, which is not the way it should be. Talking to lenders it is clear that the Treasury’s plans for modifying mortgages are moving forward only slowly and are months from being implemented on a scale broad enough to even show that the plan will work. By that time millions more homes may be lost to foreclosure. Not good.

Homeowners and their mortgages are at least as important as banks and it is time for the Obama Administration to prove they understand that.

cringely Pulse Pulse

For all the talk of declining interest rates and mortgage modifications, it is difficult for us to find much evidence of either happening yet in real terms or great volumes. Yes, published mortgage rates are being pushed down by aggressive actions on the part of the Federal Reserve, but much of this good news for homeowners is mitigated by increasing mortgage fees from Fannie, Freddie, and FHA. Lenders, too, are pushing fees higher to deal with a crush of refinance business that isn’t making them much money because of low approval rates. The market IS somewhat better for homeowners or prospective homebuyers who are extremely well qualified, but millions of underwater homeowners have no relief in sight and may not find any. It could get very ugly for them.

The Obama Administration seems to be taking its time about implementing the housing programs it has announced. First they announce, then they detail, and eventually they roll it out, or at least that’s the plan, because we see little evidence yet of such roll-outs. Few if any mortgages are being modified, for example, along the recent Treasury guidelines.

We at Home-Account are optimistic but realistic. The Obama Administration has good intentions but those intentions are tempered by multiple agendas. The Administration seems more focused right now on using the mortgage crisis to set a long-term spending agenda than with jump-starting the economy. We’d like them to hurry up.

We worry, too, that in their final versions these government programs won’t even be as useful as they have been described. We were told, for example, that the mortgage modification process would use interest rate reduction, longer term, and principal reduction. Yet the new web site http://makinghomeaffordable.gov seems to offer none of these options. Maybe they didn’t get the memo.

But this too shall pass. Lenders seem to be gearing-up for higher refi volumes. Some of this is an attempt to outrun delinquency and loss rate with new loan production, (the old finance company way to drive loss rate down — lend your way to lower delinquency, more volume). But government programs to save the homeowner do not seem to be a top priority this week with either lenders or government.

cringely Pulse Pulse

Provisional details of the Obama Housing Plan have been released and it doesn’t look all good to us at Home-Account.

For those who want it short and simple, the Obama plan no longer is limited to refinancing 105 percent of a home’s purchase price (that’s good), but offers instead what’s essentially a 5/1 Adjustable Rate Mortgage for homeowners and lenders who participate. The new rules do not, however, require any principle reduction on the part of the lenders, allowing instead for a notional 40-year loan term with the deferred principle covered by a balloon payment in some future year.

This isn’t terrible, but it isn’t great, either. We see how it serves the primary goals of the government, which are boosting home prices while at the same time limiting the potential price tag for taxpayers. But the government continues, in our view, to be too much on the side of lenders that shouldn’t be so easily let off the hook.

This 5/1 ARM strategy essentially spreads the recovery pain over a longer period of time, which is good for lenders. But it hardly offers the 15- and 30-year fixed-rate loans our subscribers should really be looking for. The government’s choice to completely ignore fixed-rate financing will probably hurt both the success of the program and its utility for homeowners. The use of balloon payments and no principle reduction simply guarantee that while homeowners may be able to keep their home – some of them – they are in for another unhappy surprise in five years.

We were hoping for better.

cringely Pulse Pulse

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.

cringely Pulse Pulse