Is $75 billion housing plan putting real estate down the rabbit hole?

Today Obama will explain the details of the plan to help troubled homeowners. The question remains will it help? And what does it mean for those who pay their mortgages? Or is this just a mad tea party in a fantasy land?

It seems the plan will only assist certain people and leave out others like families in danger of losing their homes because of job loss. Such families will not be able to qualify because they wont earn enough income to pay even lower mortgage payments.

For those that do qualify here's how it would work. For a $250,000 mortgage at 7.5% interest, the borrower is currently making a payment of $1,750 per month. If the rate is brought down to 5%, the new payment would be $1,350 per month -- a savings of $400 per month. The cost to the federal government, (the tax payer) assuming a 50% match by the servicer: $200. For $1 million, the federal government could reduce the rate for 50,000 borrowers. By comparison, the same $1 million might purchase a handful of mortgages, or guarantee a few hundred.

Other remedies in the plan could include incentives for lenders and investors to reduce the principal on a mortgage though homeowners could be required to repay the reduction or interest rate subsidies at the end of the term of the loan or when they sell their home. In theory, the back-end payments would be covered by a rise in the homes value over time.

The question remains just who would qualify for this service and would it really make a difference? As nearly half of all struggling homeowners who have already received mortgage modifications from their lenders have fallen back into the foreclosure process. Would it not make more sense to allow lower interest loans to everyone? Or a fast track, low fee refinance method to free up cash in the middle income families so they could get out and spend again thus stimulating the economy?

Maybe it's just me but it seems the congress is using spoons to bail a sinking ship. Our industry needs some REAL incentives to get people to buy. We need to reward those who have been responsible in their loans, and yes help those who have had hardship such as illness, death of spouse, or lost their job, they are the ones who should be given the chance to stay in their homes not those who had no business buying a home in the first place.

The Foreclosure fiasco is just that, a failure that was created by congress in 1977, Called the Community Reinvestment Act. The bill was intended to help first time home buyers. What it did after riskier, unwise amendments and regulatory rulings added to the bill in the Clinton era, was create subprime mortgages that put people in homes that could not afford them. Today, congress is just adding fuel to the fire. And it is our industry that will suffer.

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