The Mortgage Deal: A Reality Check
Quote:
The $26 billion settlement represents a "drop in the bucket" compared with the approximately $700 billion in negative equity
that Americans carry on their homes. "I think it will help somewhat, but the scale of the problem is so large that it won't do that much
to help the market," Khater says.
Newport says $20 billion of the total will have a marginally positive effect on the housing market. While the approximately $6 billion
going directly to people who've already lost their homes may be a help to them, "this money helps neither the economy nor current homeowners. It's just a transfer of purchasing power from Peter to Paul," Newport says.
Even the remaining $20 billion in refinancing help and help to at-risk homeowners will not kick in for another six to nine months,
Newport says. "This timeline diminishes the program's effectiveness, since borrowers in trouble need help today, not in three years,"
he says.
The bigger impact will come in freeing up the banks to go ahead with foreclosures,
The settlement "removes some of the uncertainty and the legal hurdles, and so will begin to flush some of these properties out of the system, and that's the good thing," Khater says.
"My current understanding is that the program is targeted towards salvageable loans," Newport says.
But the language suggests that help can go either toward those who are delinquent and at imminent risk of default
or those who are simply underwater. It seems likely that those who are simply underwater would get the bulk of that relief.
That may make good sense from a macroeconomic standpoint, since these are the loans more likely to be "saved,"
but it's no help to homeowners most desperately in need.
"My current understanding is that the program is targeted towards salvageable loans," Newport says.
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Is it something - yes, but at best its barely a start.
This is a mere pittance of what people have lost. It will help approx 10% of those in need. The 2-3 year timetable is a farce.
I think this "deal" is more about election year posturing than anything else.