What's Missing From the Housing Plan

Details are still coming out about the Obama Administration’s housing plan announced today. From the early reports there seems to be a couple of major holes:

1. Renters in foreclosed properties. 20% of homes in danger foreclosure are rental properties. As many of these are multi-unit buildings, about 40% of the people facing eviction because of foreclosure are renters. (source: National Low Income Housing Coalition). The bill includes insufficient funds ($1.5 billion out of the total $75 billion) to help renters relocate, does not stop banks from evicting tenants in the first place, and doesn’t appear to help owners of multi-family buildings avoid foreclosure.

2. Underwater property owners in non-Fannie/Freddie-backed loans. This group includes owners in high-cost areas with loans that exceed Fannie and Freddie’s loan limits (including many houses in Boston, NYC, California, etc.). Even those at the top end of “conforming” loans, they may be so stretched that they can’t reduce their mortgage payments to the 31% loan to income target.

3. Speculators. There’s not much sympathy for speculators in general, but the plan doesn’t address what to do with all the unsold and abandoned properties in places like Tampa, Phoenix, and Las Vegas. Do we just let the houses rot?

4. Bankruptcy judges. Obama has endorsed the idea of allowing judges to modify the terms and amounts of mortgages when the owner reaches bankruptcy court (something current law only allows for things like second homes, yachts, and the like), but giving them this authority will require an act of Congress. Without this change, banks have plenty of incentives to make foreclosure the default option to avoid having to write down the losses from loans they had no business making in the first place.

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