Obama announced the details of his new bailout plan. It's supposedly going to help 4 to 6 million folks avoid foreclosure. The last time we heard that was from the hope for homeowners bailout. That one ended up helping....lets see what was that number again....oh yea, ZERO the last time I checked.
BO's plan has 3 main parts.
Part one is to make refinancing into low interest loans easier. The catch here is you have to have a Fannie or Freddie loan. It allows those lenders to refi the loans with LTVs of up to 105%. If you are more that 5% underwater you're still screwed. I suppose other lenders could do this if they wanted but it would be at their own risk. With the LTV max at 105% this isn't going to help many people in California.
Part two is a bit more confusing. This one is trying to make payments more affordable by getting banks to lower payments down to max 38% of income. This is to be done by lowering interest rates. Then the government would throw in some money to bring those payments down to 31%. It also allows the lenders to reduce pricipal amounts with the treasury sharing some of those losses. This does not apply to speculators or those that maybe fudged the numbers on the loan docs. This one is long and complicated and has a very high likely hood of becoming a total cluster &@*%. I'm not sure how they will tell a speculator investor/flipper from the regular joe that just bought way more than he could afford because he was hoping to cash in 2 years later. Those people are speculators too. Getting the payments to 38% isn't going to be easy in Cali unless those rates go back to 1.5% in many cases. This one just reaks. It still leaves people in homes with mortgages far higher than the value of the home. All this will do is push those foreclosures a few years down the road. This one is going to be a nightmare both for taxpayers and for those homeowners that actually fall for this scheme.
Part three is geared at ensuring low interest rates on new mortages. They are basically allowing Fannie and Freddie to buy more loans in the hopes this encourages lenders to lend, and lend at low rates. I don't see this having much effect. Lenders will lend and they will charge what they want regardless of what Fannie and Freddie buy.
This plan is weak, just like the last ones. It has little hope of working beacuse it does nothing to address the root problem. Housing prices are still too high. No plan will fix that. And what I mean is that to fix it we need NO PLAN. Let the market fix itself.
The plan did have one effect, it stopped the market from tanking today. Although Wall st obviously didn't think that much of it with the market ending up flat.