The Obama Housing Plan Won’t Stop the Flood of Pinellas Foreclosures

The details of Obama’s $275 Billion foreclosure prevention plan, the Homeowner Affordability and Stability Act, are trickling out of Washington.  Timothy Geithner, Obama’s point man, announced last week that the plan will enable “4 to 5 million responsible homeowners to refinance”.   This lender bailout plan presents some nice “feel-good” rhetoric, but will do nothing to help most Pinellas home owners who bought or refinanced after 2001 who are generally 20% to 50% underwater on their homes.

To qualify, homeowners may borrow up to 105% of the equity in their homes.  A $300,000 home must be worth at least $285,000.   Polina Vlasenko, a research fellow with the think-tank known as the American Institute for Economic Research, recently stated that Floridian homeowners who are truly hurting, will likely not qualify.  The additional details of the Obama plan are:

• The homeowner must be steadily employed.
• The interest rate can be reduced to a maximum of 38% of the homeowner’s income.  The lender’s cost of the reduction down to 31% will be matched dollar for dollar by the government.  This is an interest rate buy-down, which, on the surface, isn’t a bad idea, yet the lender/investor has to take a hit to get down to 38% in the first place, which most simply won’t do.
• The lenders must keep the modifications in place for 5 years.  Hmmm.. wonder what happens after 5 years?
• The government will pay lenders $1,000 for doing the initial loan modification and then an additional $1,000 per year for the next 3 years if the loan is current.  Peanuts.
• The government will give homeowners an incentive of a principal reduction of up to $1,000 per year for the next five years.  Hmmm…..  up to a $5,000 value reduction on a $300,000 house is only a 1.6% reduction at best – this doesn’t even begin to address the icing on the cake.

We aren’t holding our breath.   There are simply too many Dunedin Foreclosures and Palm Harbor short sales on the books. 

Sadly, if you’re facing a Palm Harbor foreclosure, the Homeowner Affordability and Stability plan isn’t, thus far, a long-term solution.  It only helps those hurting just a wee-tad (5% or less upside down), fails to address any significant reductions in equity, and completely ignores those who have lost jobs.  Perhaps this will help a few hundred Pinellas homeowners who are gainfully employed, not significantly financially impacted by the economy, and aren’t in danger of losing their homes in the first place.

Reality stinks – if you’re upside down.  Yet you’ll get straight talk about Pinellas Real Estate here at The Pinellas Peach.

Buying?  Selling and Buying Up?  Investing?  Then, reality smells sweet!  Now is the time to buy and plant those seeds for future profits.  Contact us for ideas and a personal analysis of your situation to determine if investing now or later is a good idea, just how to go about it, and the benefits and any potential pitfalls for you and yours.