Doubling down on a failed mortgage bet 

It was Feb. 19, 2009, when President Barack Obama proclaimed in Mesa, Ariz., that “through this plan, we will help between 7 [million] and 9 million families restructure or refinance their mortgages so they can avoid foreclosure. By making these investments in foreclosure prevention today, we will save ourselves the costs of foreclosure tomorrow.”

It’s now 2½ years and $2.4 billion later, and that “foreclosure prevention” plan has been an abysmal failure: A mere 1.7 million people received any “help” at all, housing prices continue to fall, and almost 11 million Americans remain underwater, owing more on their mortgages than their homes are worth.

Despite the first plan’s fizzle, Obama went to Las Vegas on Monday and doubled down on the same policy, introducing a modified version of the Home Affordable Refinance Program.

Under the old HARP rules, borrowers whose homes had decreased in value but retained net positive equity could apply to refinance their existing mortgage at lower interest rates. Under the new HARP rules announced Wednesday, borrowers who owe more than 125 percent of what their property is worth can now participate in the program.

The president is, perhaps understandably, shy this time around about saying how many people his new plan will help, but Housing and Urban Development Secretary Shaun Donovan told PBS there are about 4 million underwater homeowners who could benefit from the program. Nobody thinks that many will qualify, if only because of the requirement that Fannie Mae or Freddie Mac must have purchased the loan before June 2009, a fact Obama failed to mention in Nevada. According to the Federal Housing Finance Authority, at most, only about 800,000 homeowners could benefit.

Let’s leave aside for a moment the fact that 800,000 refinanced mortgages is a drop in a bucket of 11 million underwater homes. The reality is that, even in small doses, Obama’s foreclosure medicine only exacerbates the underlying problem.
Unfortunately, many Americans just are not as rich as they thought they were. The houses many people bought during the housing bubble are not worth what they borrowed to pay for them. The question, then, is why is it Peter’s responsibility to bail out Paul from a bad investment
decision?
Almost one-quarter, 22.5 percent, of all residential properties with a mortgage are still underwater. Obama’s refinancing plan tries to ignore this unpleasant fact. Even if the new plan is a wild success, and all 800,000 families are able to reduce their monthly mortgage payments by a few hundred dollars, their homes will still be worth less than they owe.

That is why the housing sector of our economy will continue to languish in limbo until these losses are accounted for in the marketplace. Pretending otherwise has only prolonged the pain for those families involved and extended their discomfort across the country, as housing stagnation continues to pull down the rest of the economy.

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