For one thing, I think it’s fair to guess that when the deadline looms for the return to market rates, steps will be taken, if necessary, to ensure that no one gets porked too badly by whatever market rate exists then. At minimum. Come 2014, who do you think will be saying it’s a good idea to push the people that got bailed out in 2009 from 4.5% up to 8.5%? Not gonna happen, I don’t think.

I agree that prices are not going to go back to where they were in 2007 anytime soon. But that’s why there’s a limit of the program to loans that are no more than 5% underwater. The presumption that this limit makes is obviously that if you are more than 5% underwater, you best choice may quite simply be to default any or declare bankruptcy. Seriously, what sound financial reason is there to stick out, let’s say, a $300k loan on a house that’s worth at best $220k for the foreseeable future? Remember, character is not a sound financial reason. :-)

Sure if you default then you screw up your credit. But I think it makes sense to presume that there’ll be some future forgiveness for folks who got caught in terrible spots when the RE bubble burst. And conversely and probably more importantly, no one is going to be handing out medals to the folks who hang on their home with 80k in negative equity.

I don’t really view this program’s main intent to preserve the home ownership of as many people as possible. I view it as a program to encourage folks in different bad situations to get past the current bad fix they are in. Maybe it sounds awful blithe to say, but if you have a badly underwater loan on a house worth way less than you owe, you probably need to bail, face the music, and get past it.

1. The plan allows for refinancing for underwater mortgages to a low fixed interest rate as long as:
a) You owe less than 105% of the home’s value.
b) Your mortgage is either owned by or backed by Fannie & Freddie.

I’m not an economist, but it seems to me there were alot of homes bought with no money down or only 3% down, and alot of interest-only option ARMs. Combine that with the fact that housing prices are down 10-30% nationally from peak, and the fact that most mortgages are not owned by or backed by Fannie/Freddie, and I think the number of people who will be helped by this part of the plan is relatively small. But I could be wrong. Perhaps Fannie/Freddie plans to go on a toxic mortgage buying spree?

2 The plan allows interest rates to be reduced for those whose mortgage payment is > 31% of their gross income. This reduction will be subsidized by FED/Treasury for 5 years, after which point the interest rates will go back to market rates. There will be ‘incentive’ for the lender to knock up to $5000 off the principal owed.

While this might be helpful in the short term, it assumes prices will go back to where they were in 2005-2006 by 2014, which I think is not going to happen. Otherwise, these borrowers will be back in the same boat they are in now in 2014. Plus, this plan doesn’t help anyone sell their house (if they need to move for work, etc.) because it doesn’t reduce enough principal to allow the house to be sold.

So call me cynical, but I don’t think this plan goes far enough to solve the housing debacle. On the other hand, I’m not sure what plan WOULD.

But I object to your characterizing Cantor’s providing context as proof that he doesn’t get it. The context is what it is. Every single person who undertakes to have a serious opinion about these issues should have an understanding of the SCOPE of the problems.

That 93% are current is a simple fact. It is what it is. But if Cantor thinks it means we don’t need to do anything, then I agree with you that he’s way off.

Just because your mortgage is current doesn’t mean you aren’t seriously struggling to make payments. And it doesn’t mean that your loan isn’t worth more than the value of your house. I bet a fairly significant number of those 93% Cantor cites are in either or both of those situations and not because they’re speculators.

Right. And any decent assessment of the nature of these things lies in data, which is what Cantor provided. What you’re saying sounds reasonable, and is yet basically speculation.

The guts of this plan is to provide savings to many folks with tough mortgages via refinancing to better loan terms. Reductions to principle are apparently at the discretion of lenders, and will by my guess therefore be fairly rare. It also seems that people with underwater mortgages (valuation lower than amount owed) will not be bailed out if the situation is way out of balance.

What’s not yet clear to me is how the plan addresses people who have demonstrably insufficient income for the amount they have borrowed even under favorable terms. Someone like the guy on CNBC’sHouse of Cards who bought a 600k house with 50k/yr income is near the bottom of my list of people who should be helped to keep their home. We must target sustaining the sustainable. It’s a triage situation.

The thing is, though, why should the 93% who are current — especially whatever number have been struggling to make payments but did make them — feel good about this? If you bought a house you could not afford in the middle of an obvious housing price bubble, with no or little money down and an interest rate that would reset in three years, why am I paying more taxes to “keep you in your home”?

My father, who was a railroad worker, would always say whenever anyone referred to him and my mother as homeowners that the bank owned the house we lived in. Smart fellow, dad.