November 11, 2011 | Commentary on Housing
When you're in trouble, nothing beats a helping hand — provided you can reach it. Certain homeowners with "underwater" mortgages are about to find that out.
Say you're a homeowner with such a mortgage. The value of your home has dropped over the last few years until it is much less than you owe. It looks like you'll never get any relief. Then the government announces another plan to help people like you — the ones who have struggled to pay their mortgages on time. So you apply. Surprise: there are technical terms (which nobody mentioned ahead of time) that mean you don't qualify. And you realize that the only thing worse than dealing with a continuing problem is having your hopes raised and then dashed.
On second thought, the only thing worse is to find that, regardless of whether you qualify, taxpayers are on the hook for up to $60 billion to pay for the program.
Yes, it's happening again. Undeterred by the underperformance of several previous efforts, the Obama administration has announced yet another plan to refinance the mortgages of homeowners who owe more than their house is currently worth. However, this version of the Home Affordable Refinance Program (HAMP) has many of the weaknesses of previous ones. And it's unlikely to be any more successful. To make matters worse, the cost of the refinanced loans will be borne by Fannie Mae and Freddie Mac, which the government already controls — and it could add as much as $40 billion to $60 billion to the eventual cost of their bailout. So far, the two have received about $160 billion of taxpayer money. Freddie Mac just asked for another $6 billion to cover third-quarter losses.
HAMP was announced to great fanfare in 2009 with promises that it would assist up to 5 million of the 11 million underwater mortgages. It followed several other unsuccessful plans by Congress and the Bush administration. However, to date HAMP has helped only 900,000 homeowners, and only 72,000 of those homeowners owed more than their house is worth.
The latest version promises to help borrowers who have paid their mortgages for at least six consecutive months, regardless of both their current financial situation and how far the value of their home has fallen. Mortgages must be current; any homeowner who has a late payment in the last six months or more than one late payment in the last year is ineligible.
The mortgage cannot have been refinanced in the last 30 months. New appraisals won't be necessary, and title insurance will automatically transfer to the refinanced mortgage. This means that the fees for these services and certain others will not be charged, thus reducing the cost of the new loan.
However, only mortgages that were bought by Fannie Mae or Freddie Mac before June 2009 are eligible. Thus, many homeowners with underwater loans are likely to go through the application process only to find that their mortgage doesn't qualify.
As with previous HAMP incarnations, these important details are either hidden or not in the publicity surrounding the revised program. So if you are one of the lucky few homeowners who qualify for the revised HAMP program, you have had a happy day. The rest of those with underwater mortgages will see another hope go down the drain — followed by up to $60 billion of our tax dollars.
David C. John is the senior research fellow in retirement security and financial institutions at The Heritage Foundation.
First moved on The McClatchy Tribune Wire service