Finally, an Honest Assessment of the Housing Bill
Who can get foreclosure assistance from this bill and how soon? With all the excitement over the foreclosure relief bill, most of the press coverage has been light on analysis, particularly when it comes to forecasting how this bill will play out in “real life.”
Before the bill was even signed by the President, legislators were urging lenders to stop foreclosure proceedings on any loans that “might qualify.” Nevermind that there was no indication (still isn’t) as to how this program was going to be implemented.Nearly all of the mainstream press has cited how this bill “will [my emphasis] help 400,000 homeowners to avoid foreclosure,” without questioning that number.
So, I was surprised to see this story, which actually questioned how many people would be helped, how soon, and how many people would NOT be able to take advantage of the new foreclosure bill.
Anyone who’s honest about real solutions recognizes that we’re going to need a healthy dose of principal forgiveness if we honestly want to avoid foreclosure for homeowners who are underwater.
The chief argument against that solution was the “moral hazard” issue: “if we do it for one, we might have to do it for everybody.”
Meanwhile, troubled lenders have done exactly that when it comes to their own debts.
The truth about this bill, is that this FHA program acts as a “beard” for investors, so they can allow principal reductions without actually “doing” them. The bill keeps the bar high enough, and makes the practice rare enough, that they can skirt the moral hazard.
More importantly, they’re only going to do it on the worst loans, with the highest risk, and the highest expected loss severity.
Moral of the story: if you are trying to avoid foreclosure and keep your home, your odds of using this program are slim.
The good news is, you still have plenty of options.
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