Pete Flint’s Blog

I found this useful table in the New York Times, this morning, I thought it was a useful to explain how the Obama housing plan might affect responsible homeowners. More details are due from the government within the next two weeks.

Removing a limit on refinancing for "responsible homeowners"

4 million to 5 million households.

The bill will remove the current restriction on Fannie Mae and Freddie Mac that prohibits them from guaranteeing refinancing on mortgages valued at more than 80% of the home's value. This will allow many more homeowners to refinance at lower rates.

        Who doesn't qualify

• Those holding loans not owned or guaranteed by Fannie Mae or Freddie Mac.
• Mortgages above a certain threshold -- $417,000 for single-family homes in most areas and $729,000 in higher-priced regions.
• Those whose outstanding mortgage debt exceeds 105% of their current home value.

First news on MarketWatch on Obama’s plan to help halt foreclosures.

There are two programs. One to help 4-5m struggling home owners with loans owned or guaranteed by Fannie Mae or Freddie Mac to help them refinance.

The other is a loan modification plan with government subsidies to lenders to reduce their monthly interest payments.

• Lenders responsible for bringing down interest rates so the monthly mortgage payment is no more than 38% of pre-tax income
• After that the government would match the amount reduced by the lender to bring the payments down to 31% of their pre-tax income.
• $1,000 incentive for loan services for each successful loan modification and additional funding for each month the borrower stays current on its loan
• Homeowners also receive $1000 a year for five years, as long as they stay current on their loan payments.
• Additional incentives to lenders who modify at risk loans before the borrower falls behind

As part of the larger housing plan, it is expected that there will be an announcement that lets bankruptcy judges alter mortgages and lower interest rates for troubled homeowners

In a smaller separate program there is expected to be funding of $1.5 billion to help renters relocate who have been displaced by foreclosure and $2 billion to stabilize neighborhoods hit by high levels of foreclosure.

The $787 billion stimulus bill (HR1) was signed yesterday by President Obama, hoping to stimulate home purchases as well as halt the growth in foreclosures.

For potential home buyers the important news is the American Recovery and Reinvestment Act of 2009, which increases the $7,500 limit on an existing tax credit for first-time homebuyers to $8,000. A first-time buyer is defined as someone who hasn't owned a principal residence in the last three years.

We’re expecting more news on the government’s foreclosure plan, but I noticed this news from Inman, which was interesting to me.

“HR 1 also spells out a previous commitment by the Obama administration to spend at least $50 billion from the second round of the $700 billion Troubled Asset Relief Program (TARP) on foreclosure prevention.

The bill mandates that the money be spent on a loan-modification plan that may involve loan guarantees or credit enhancements, reduced loan principal amounts and interest rates, an extension of loan terms, or any combination of similar methods.

The section of HR 1 addressing foreclosure prevention, dubbed the "Help Families Keep Their Homes Act of 2009," also calls for incentive payments to loan servicers of up to $2,000 for each foreclosure they are able to prevent through a short sale, loan modification, workout, or other loss mitigation plan.

Congressional Democrats are also pushing legislation that would give bankruptcy judges the power to modify the terms of troubled borrowers' loans -- including "cram downs" of principal. The Obama administration supports the change, but reportedly did not want to tackle the issue in the already controversial stimulus bill (see story).

The mortgage lending industry opposes giving bankruptcy judges cram-down powers, saying such involuntary, after-the-fact changes to loan terms will raise the cost of borrowing for all consumers.

The New York Times reported today that Democrats plan to include language modifying the bankruptcy code to permit cram-downs in a spending bill that Congress must pass to keep the government funded.

Obama's foreclosure-prevention plan is expected to include government subsidies to reduce the interest rates of troubled borrowers' loans, the Times said, with lenders providing matching contributions.”

What do people think of the bill and plan?

I’m also looking for more information on the $2,000 incentive payment to loan servicers. Can anyone point me to any sources? I'm also hearing that the number of $1,000 is actually the proposed number. Any more details?

I saw some charts from a Goldman Sachs report that was published at the end of 2007 on the housing market that I thought were pretty interesting to help understand future housing prices. They show below the relationship between foreclosure rates and housing prices. For the most part the predictions I've seen related to the number of foreclosures have been much more accurate as they rely on fairly well document financial instruments and ARM reset dates. The historical perspective is interesting, although it feels like things are deeper this time as rising unemployment and falling house prices is pushing the foreclosure rates higher.

Here are the charts for
California Foreclosures


Texas Foreclosures


Massachusetts Foreclosures


So for these periods in the 1980's and 1990's the lines seem to be remarkably negatively correlated. So that as foreclosure rates stall to fall, house prices start to rise.

Goldman went on the look at some scenarios for US Home Prices and Foreclosures based on it's data for foreclosure rates. There is also supporting data that while the above holds for regional housing busts, it also applies to the national trend. They say the chart is just a schematic to demonstrate the concept, but interesting nonetheless.



What are your thoughts on this data?
Any perspective on the local market.
Do you agree or disagree with these charts?