Housing Crisis Plan

SPECIAL HOUSING REPORT
March 4, 2009
Evaluating the Details of Obama’s Plan


The details of the foreclosure prevention program were announced today, but largely just elaborated on what was previously reported. The plan, dubbed the Homeowner Affordability & Stability Plan, is supposed to help up to 9 million Americans. Unfortunately, this relief is concentrated strictly in the conforming loan market.

Two major components of the plan:

1) Help homeowners who have been current on their mortgages but thus far have been unable to refinance because of a LTV issue (estimated to potentially help 5 million people).

This is restricted to loan amounts under $729,750, primary residences only, LTV cannot exceed 105% (unless loan is currently owned by Fannie/Freddie), and housing ratio no more than 38%.

2) Help homeowners who are already in default or “at risk” with standardized modification procedures (estimated to potentially help 4 million people).

Again, $729,750 maximum loan sizes, primary residences only, 38% max housing ratio (which needs to be subsidized down to 31% by government), and there needs to be compelling reason for the modification request (i.e. financial hardship, interest rate hike, etc.).

My view of the plan- it will help far less people than their estimates and still does very little for large swaths of the country, like southern California. Here in coastal California, we need to rejuvenate the jumbo market, which has been severely hampered by the virtual shutdown of the securitization market. In addressing this, the Fed did announce a major expansion of the TALF program (Term Asset-Backed Securities Loan Facility), whereby they would lend up to $1 trillion to revive securities markets. Under this program, the government will allow very cheap borrowing (LIBOR + 1.0 margin) with a government guarantee if the underlying loans they make go bad. This is a major positive step in restoring jumbo loan options.