Wednesday, February 18, 2009

Money going to Responsible Home Owners

In response to the Update on Scooter's post, that inquires as to how the plan will manage to only give money to those who didn't buy more house than they knew they could afford:

It looks to me like the only cash payments that will be made under this plan would go to lenders. (I'm still reviewing it, so maybe I've missed something.) So, in a literal sense, no cash will be going to any homeowner.

Also, it doesn't look to me like there's anything in the executive summary of this plan that precludes a mortgage rework for someone who "knew" they were taking out a mortgage they couldn't afford. Part of the plan is only available if the mortgage payments exceed a given percentage of income. There's no test of "knowing"; instead, there's a percentage of income test. (That might be intended to be limited to situations in which the payments have gone up as a result of exotic loan terms, but I can't tell for sure.) There is the big and broad and vague provision (in the Exec. Summary) that calls for Treasury to develop guidelines for loan modifications across the mortgage industry. Those could include some sort of test (of affordability or of knowledge of non-affordability), but that's not spelled out in the executive summary.

In short, I think the criticism that the plan calls for a ridiculous knowledge test might be a red herring. Too soon to tell. The administration may be marketing the plan by saying that it won't help those who knowingly took on more mortgage than they could afford, and that might accurately be the result of limitations within the plan, but that doesn't mean that's the test.

Here is a link to a Fact Sheet that has a couple more details than the Executive Summary. Still, I don't see anything resembling a knowledge test.

1 comment:

Brian Wiesner said...

As in the Hope for Homeowners program, the premise is if you did a stated income loan, you did so because you were lying about your income and knew "you couldn't afford it." While Fannie Mae loans often required no income documentation due to strong credit or assets, that is different than over-stating your income. Those "couldn't afford it" comments are intended to single out the people that did stated income loans to let them know they are ineligible for this program.