Can U.S. Homeowners Really Get Mortgage Relief?

Since U.S. President Barack Obama unveiled his plan to help troubled U.S. homeowners rework their mortgages by underwriting part of the expense for select lenders under very limited conditions, the results have been underwhelming.

Surprise, surprise.

MakingHomeAffordable.gov is an attractive, hopeful-looking web site that, when all is said and done, doesn’t help very many people very much to begin with, and what’s more, is only a timid suggestion to the lending institutions who caused this mess in the first place. Compliance and cooperation on the part of mortgage lenders and banks is totally voluntary.

According to a recent New York Times article on the continuing challenges facing American homeowners when it comes to getting a loan modification on a troubled mortgage, having a government HUD counselor doing the negotiating does help, but it doesn’t help enough. In New York City alone, the applications for help through the Making Home Affordable program are so numerous that it can take in excess of 60 days to get any response from the lender at all once the application is finally submitted.

Once that lender response comes, it’s often in the form of an argument.

Lenders interpret the program differently according to the properties in question and the potential for loss, and a fair amount of confusion (or feigned confusion) continues to slow loan mods down. Some lenders insist that foreclosures can proceed during the negotiation process (they can’t), while others insist that according to the program’s guidelines, homeowners have to be current on their mortgages to qualify (they don’t).

Not that the program doesn’t have promise. It does, and it’s definitely better than no program at all. But as the foreclosure crisis spreads to prime mortgages and stable neighborhoods due to huge job losses in the U.S. and still-falling home values, it is becoming clear that lenders are in no hurry to be all that helpful, and that by far the biggest issue is the huge drop in home values, not high interest rates.

Reworking current (or nearly current) subprime loans for people who still have jobs is like spitting on a forest fire.

How many people do those conditions apply to now? Not that many.

It would be refreshing to see the ‘moral hazard’ argument applied less frequently to borrowers and more frequently to the banks and lenders.

With transparency for TARP funds still nearly nonexistent and the Fed printing up money for troubled banks as if it really existed, it would seem that turnaround would be fair play at this point.

If you think about TARP as being something akin to a payday loan to lending institutions, (which it is), then it seems it would be fair to charge 400% interest on that money the same way the banks that are taking the TARP payday loans do for their own poorest customers.

It’s hard to get a refinance or loan mod right now, because according to the banks, few people are creditworthy and the risks are just too great. But…

What about the banks’ poor credit?

When all is said and done, the toxic mix of still-plummeting home values, high unemployment, and unstable financial institutions is likely to make investing in U.S. real estate a dicey prospect for several years out, if not longer.

On the up side, some credit card companies are just now beginning to negotiate directly with delinquent cardholders by cutting balances in half and lowering interest rates. It seems a little something is better than the nothing these institutions get when their customers go bankrupt and/or they can’t sell the debt to a collection agency.

Debt collection agencies are not so interested in buying delinquent credit card debt as they once were. Lots of houses are no longer selling at sheriff’s auctions.

It’s an intriguing concept: Cut the principal, lower the interest, let the lender absorb the losses on loans they made unwisely.

Will we see it with property?

Fat chance.