What do you think Congress and the Administration should do for California's underwater homeowner?

  • Require lenders to grant homeowners loan mods, a la HAMP. (52%, 61 Votes)
  • Nothing, homeowners must honor their agreement to pay their mortgage. (30%, 35 Votes)
  • Let the judiciary decide when a mortgage cramdown is appropriate. (18%, 21 Votes)

Total Voters: 117

Eligible homeowners may skip all or part of their monthly mortgage payments for one year or more as part of the administration’s new foreclosure avoidance program. The effort is directed at unemployed homeowners in an effort to keep people in their homes while they get back on their feet.

Here, under yet another government program, lenders whose loans are insured by the Federal Housing Administration (FHA) will be required to defer payments for eligible homeowners. Currently, 14% of mortgages nationally are insured by the FHA.

The requirement will not, however, apply to loans owned or guaranteed by Freddie Mac of Fannie Mae, who have roughly 70% of all mortgages. Lenders who participate in HAMP will be encouraged, not required, to participate.

first tuesday take: Congress needs to first legislate handouts which create jobs if we are to expect a cure for the housing downturn. They cannot continually rely on unemployment programs such as this moratorium on FHA loan foreclosures for the jobless. Get unemployed homeowners a job and you will end one major cause of foreclosures.

If the government’s purpose is to help the unemployed, then allow them to live rent free in the 200,000 plus real estate owned (REO) homes the government via Freddie and Fannie now own. Most likely 40,000 of them are in California.

4% of the statewide mortgages in trouble are FHA-insured ― the market share until they began insuring a 40% share of annual originations following the onset of the credit crunch of the 2007-2009 Great Recession. Those loans are not likely involved in default.

For those lucky few FHA-insured and unemployed homeowners who bought during the 2000-2007 financing era, the government acknowledges you have a need. This program may be the saving grace for that narrow group as they are still on the job hunt, unsupported by government assistance. [For more information regarding California employment, see the June 2011 first tuesday Market Chart, Jobs move real estate.]

Unfortunately, the majority of homeowners have a mortgage held or guaranteed by Fannie, Freddie or a lender not insured by the FHA.  They will continue their desperate search for what has become a totally insufficient job market, all the while with an impending foreclosure notice on their minds.

The administration is in serious denial by now if they think lenders will voluntarily agree to cut homeowners a break without being required to by the government or a court. Just like with lenders who participate in HAMP, a kind invitation to defer payments for the unemployed will do nothing for California’s homeowners. [For more information regarding HAMP, see the June 2011 first tuesday article, More bad news for HAMP.]

Re: “New housing program is aimed at the unemployed” from the NY Times