By now, I am sure you have all heard about the President’s latest directive this week to help troubled homeowners refinance their mortgages, even if their loans are far higher than the value of their homes.
The bigger question should be – Will the big banks adopt the presidents plan? Polls show a majority of Americans are in favor of his plan but we know that means nothing unless the banks and congress make it so.
THE BANKS – From the banks perspective, the plan poses problems. It is meant to make it easier for homeowners that are “underwater” and current on their payments to refinance into a lower-rate mortgage, regardless of how far their homes’ value has fallen. They will contend this policy does not improve the homeowners’ equity position, thus they are still underwater and still a threat to walk away from their home. There are provisions via the HAMP program to write-down the borrowers principal balance, but not many are being done. Even with added pressure from the President to write down more loans, the banks are not budging.
THE PREZ – Many in favor of the banks adopting Obama’s plan feel the sooner debt is balanced, the sooner banks will lend again, homeowners will have a renewed confidence and start spending money again. A win-win for all. They contend it is a more sensible plan because its focus is on responsible homeowners in contrast with the first go-around that refinanced loans of already troubled homeowners.
The key item to remember is that this is only a proposal, it does not have congressional approval and still has to work its way through the political system and big bank lobbyist. There is no way to predict how long if ever these changes will come to the market place.
Once again I am afraid, this may be much ado about nothing…..