The Obama administration is talking about another mortgage modification effort. This one allows lower-interest refinancing for borrowers who aren’t eligible for refinancing:
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.
Apparently HAMP has a companion program called HARP that already does this. Since mortgage delinquency is rising after a two-year stretch of downward motion, these programs aren’t working.
The underlying issue is a bunch of underwater mortgages. Cram-down is a real solution to that problem, but we’re not going to get it. Instead, we have ineffectual half-measures, like HAMP, HARP and whatever this new one will be called, that don’t address the real problem. Moving from an 6% to a 4% mortgage will put a few more bucks in a homeowner’s pocket, but it still doesn’t address the issue that s/he is locked into a house that they can’t sell without a tremendous loss. If that person loses their job and is unable to find another one in the same area, they’re financially ruined no matter whether they sell their house or default on their mortgage.