Bush anti-foreclosure plan disappointing
If you're struggling to keep up with your mortgage, don't expect a lot of help from the plan President Bush announced Friday to help families avoid foreclosure and keep their homes.
The most significant part calls for the Federal Housing Administration to launch a new program called "FHA Secure."
As described by the White House, it will "help people who have good credit but who have not made all of their payments on time because of rising mortgage payments" refinance their homes with government-guaranteed loans.
That indicates the program is intended to help homeowners who have adjustable-rate loans, but can't refinance because they don't have enough equity in their home, get a new, more affordable mortgage.
Indeed, Bush said, "this means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes."
But until all the rules are released, it's impossible to tell how many homeowners might qualify for that help, and if the government guarantee will prompt lenders to refinance more loans than they will now.
FHA Secure also seems to exclude the majority of borrowers who are in trouble -- those with bad credit and the most costly, subprime loans.
Beyond that, Bush's anti-foreclosure plan:
- Called on Congress to "modernize" the FHA so that it could guarantee larger loans, and loans with smaller down payments.
- Allow homeowners forced into short-sales avoid taxes on the amount of their loan that's written off.
- Have the Department of Housing and Urban Development and Treasury Department work with community organizations and lenders "to expand mortgage financing options, identify homeowners before they face hardships, help them understand financing options, and allow them to find a mortgage product that works for them."
Raising the limit for FHA-guaranteed loans is essential. They're too low to help buyers in places where home prices have risen the most, such as California and the northeast.
But that won't help anyone facing foreclosure save their home.
Nor will changing the tax laws to exempt any benefits from a short sale from federal income taxes. A short sale is where your bank agrees to let you sell your home for less than you owe on your mortgage.
Current law requires sellers to count however much the bank writes off as income on their taxes. Not having to worry about that is great. But by the time anyone has to worry about that, they've already lost their home.
Finally, we aren't sure HUD and the Treasury can provide any meaningful help to community groups and lenders dealing with the wave of foreclosures. Friday's announcement, for example, didn't commit any money to refinance loans that banks or mortgage companies won't touch.