Here’s a good summary of Obama’s proposed foreclosure rescue plan from our friends over at Calculated Risk.
This plan rewards those homebuyers who speculated with excessive leverage. I think this is a mistake.
Another problem with Part 2 is that this lowers the interest rate for borrowers far underwater, but other than the $1,000 per year principal reduction and normal amortization, there is no reduction in the principal. This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure – prolonging the housing slump. These are really not homeowners, they are debtowners / renters.
Personally, I feel that foreclosures are part of the solution, not part of the problem.
Here is The Tim’s 4-point foreclosure plan:
- Require banks to inspect the loan documents from all home loans issued between 2003 and 2008.
- Any mortgages found to be based on falsified information are immediately nullified.
- The home “owner” must either qualify for a full-doc loan based on current standards, or forfeit the house.
- Ta-da! Foreclosure “crisis” solved.