Foreclosure relief plan more exclusionary than helpful to homeowners, real estate professor says

Thursday, December 13, 2007
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A new program to help homeowners who are facing big jumps in their mortgage payments is less than it seems on the surface. That's the opinion of John Baen, a professor of finance, insurance, real estate and law at the University of North Texas.

The foreclosure relief plan, unveiled by the Bush administration last week, could assist 1.2 million homeowners nationwide. It would allow some borrowers with interest rates scheduled to jump sharply in the coming months to either refinance the loan or have their current rate frozen for five years.

Baen says the plan is not a bailout of homeowners, but a bailout of "government guarantors like Fannie Mae and private mortgage insurance companies, since mortgage insurance is supposed to pay off these loans when they go into default."

He points out the plan doesn't help people who took out adjustable rate loans before 2005.

The freeze also excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months. In addition, it only covers borrowers with adjustable rate mortgages resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates.

The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that only 145,000 households will qualify for the rate freeze.

The plan, Baen says, "seems a bit discriminatory."

"Plus, the corporations and investors who bought these adjustable rate mortgages as investment vehicles and settled for less profit up front may well demand compensation from the government because of this deal. However, I like that the proposal is not a reward for people who overbought and were already late with their mortgage payments," he says.

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