Housing Advocates React to Obama's Plan

The National Community Reinvestment Coalition has finished an initial analysis of President Obama’s new foreclosure plan, the Homeowner Affordability and Stability Plan.  In an email sent to members, John Taylor, President of NCRC, acknowledged that while the plan advances “the cause”, that it still “falls short of what we hoped to see.”

Specifically, Taylor indicates that his organization, and others, had been hoping for a better carrot.  They propose a $4,500 incentive for lenders that agree to modify loans.   The incentive would be paid out over a period of three years.

NCRC has a larger explication of its foreclosure relief plan, entitled the Homeowners Emergency Loan Program (HELP!).  It calls for “broad-based” mortgage loan modification.  Some steps include:

• Federal government buys distressed assets from MBS portfolios at discounted rates, then modifies the loans and resells them to private investors.  When a property is not resaleable, even at discounted price, then HUD and FHA products can be utilized.
• Start a Reverse Auction program for distressed securities, starting at 80 percent of face value and dropping as low as 50 percent.
• Compel the sale of troubled assets, through not only Eminent Domain but also the Commerce Clause of the Constitution.

The wisdom of this plan lies in its thrift of government funds.  Since the government position is relieved by private investment, taxpayers are not on the hook for the distressed assets.  The governments role is to act as a liquidator.  As well, there is no government backstop through loan guarantees or mortgage insurance.

The plan would be targeted at borrowers in their homes, who still have income.  Eligibility would extend to borrowers who are not yet delinquent, in order to protect neighborhoods from ruinous patterns of multiple foreclosures.

However, NCRC’s cautious approval is not matched by the more excited reaction of other advocates.  Notably, ACORN is coming out with nothing but support for the ideas.