The new bailout...
I have not read any "official" details on this new mortgage workout plan the Obama administration is touting. But there are some blogs reporting the supposed workings of it. This plan is the reason for the newest foreclosure freeze. The adminsitration has asked the banks to hold off until this new plan is announced. BTW this plan is not part of the stimulus package. That's more money the taxpayers will have to pay off.
Here's what I have read so far. The new plan is geared towards people on the edge of affordability. People that have been making payments but due to hardship are now having trouble. The plan is to have the lenders refi the people into low interest fix loans of 4 to 4.5%. If the home is worth less than the mortgage the excess amount will be held back from the loan. That money will be paid back when they sell the house. For example, if you have a house worth $200k and you loan is $300k. They will get you into a new loan for $200k at 4.5%. When you sell the house you pay that $100k back. Obviously there are a lot of details missing here. What happens if the house only sells for $200k in 5 years. Are they still on the hook for the hold back amount.
If the 4% interest thing happens it's really gonna piss off any new buyers. Why do these people get 4% and new buyers are getting stuck with 6%.
Compared to most of the bailout plans this one seems slightly more reasonable. Most people that bought after 2004 are still not likely to qualify for this (assuming it is structured this way). It's probably not going to be very effective in the super bubble areas like SoCal. It's obviously not going to help people that are losing homes due to unelmployment. Unfortunately that's the fastest growing reason people are losing homes.
The one sure effect that this will have is to slow the decine. It will slow the flood of foreclosed homes and slow the price declines. Obviuosly, it has already slowed the foreclosures since banks have frozen them until the details of this plan are announced.