By MICHAEL GRAY
Treasury Secretary Tim Geither’s $75 billion mortgage modification and foreclosure rescue was “not shovel ready“ according to industry insiders.
One facet of the plan is to address homeowners who are behind on their mortgages due to financial hardship. The other aspect is to unburden mortgage payers who are current but owe more than the house is worth.
Sources tell me “They put the cart before the horse,“ in announcing that the rescue plan would be ready to go on Day One.
Geithner’s two-tiered approach to slow the home price crash has many pieces missing or not in place including appraisals, underwriting and risk management of the reworked loans.
Treasury still needs to have soldiers on the ground to monitor home appraisals or the program could lead to more troubles than it solves, by corrupting the paper underlying the mortgages, thereby concealing the risk, which is what brought us here in the first place.
Under the plan, Geithner has charged Fannie Mae and Freddie Mac to rework loans on their books, which according to mortgage industry figures amount to about 50 percent of US loans, for homes valued below $729,500.
Major glitches, according to some mortgage industry sources, in the plan are to allow homeowners again to fund up to 105 percent of the property’s value and also excluding local foreclosed homes from dragging down the assessment of a reworked loan.
“The administration is desperately trying to put a floor on foreclosures. Let’s hope it’s not a trap door,“ said a source consulting with Fed officials.
It is conceivable that many homeowners would again be upside down on their new loans when they sign the document, because of these two features.
“It is not productive to artificially support home prices at an unsustainable level,” Said David Wyss, an economist with Standard & Poor’s.
Geithner in Capitol Hill testimony earlier this week told lawmakers that the fraud detection was an important component to the mortgage plan.
Allaying fears from Senator Chuck Grassley (R-IA), who wanted the Obama administration to place safeguards in the mortgage modification plan so the funds did not re-ignite an army of loan scammers taking people’s money in the hopes of getting federal help.
With Friday’s 651,000 monthly unemployment report for February and the upward revisions to December and January, the economic hardship program may need to be expanded.
“As unemployment continues to rise, our foreclosure crisis will only grow worse,” Rep. Carolyn Maloney, chairman of the congressional Joint Economic Committee, said in a statement.
Some see the program as an euphemism for turning homeowners into renters because there may be little or no equity left in the house to make major repairs after enrolling in the program.
Administration officials counter that if the homeowner stays current on the new mortgage they would be eligible for up to $5,000 annually for such rainy day events.
The final key concern is how to deal with the underlying mortgage-backed securities of the homes enrolling in one of the programs. Will Uncle Sam make the investors whole in order to avert years of litigation?
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