Obama Is Up Against Mountains of Foreclosures
Posted on February 26, 2009
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Obama is up against mountains of foreclosures, as the number running into millions is showing no signs of abatement.
In Mesa, Arizona in each block there are a minimum of two foreclosed units for sale. It is a grim sight with buildings in various stages of vandalism and decay – broken deck lights and scorched brown lawns with graffiti on gates and doors.
Arizona is one of the worst affected states and it is appropriate that it is here President Obama will announce his new foreclosure prevention programme. He will be speaking at a local high school. The locals are more hopeful than confident that the use of $50 billion will be effective in ending the housing crisis.
Tim Inversion is one of the many reeling under the effects of recession. Last November he lost his job in the construction industry. He said, “I’m hoping Obama will do good.” Iverson is primarily worried about losing his house to foreclosures. He owns the property jointly with his mother. Four years ago they refinanced it. Then it was valued at $212,000. Today the valuation has gone down to $160,000. But the mortgage payment is high at $1,400 per month. It is putting untold pressure on mother and son to make ends meet. They survive on Social Security cheque and unemployment benefits.
Unfortunately the measures Obama will take cannot be expected to make massive changes in defaulting mortgages. It will be more in the form of incentives designed to attract lenders to go for loan modifications. The comprehensive measures will pour in government money to mortgage firms that will be expected to lower mortgage interest rates and hence bring down monthly payments. This is according to many who have been briefed on the measure.
Till Tuesday 17th February it was not clear what guidelines the government would follow to determine qualifying borrowers. Generally it is expected that the monthly payments would be brought down to 30% of the pre-tax income of the persons involved. If this time the lender fails to cooperative they have to face the Damocles sword hanging over them – empowerment of bankruptcy judges. So far the mortgage industry has prevented the sword from falling by arguing that lenders will be compelled to raise rates to cover the extra risks they will have to take.
The Herculean task before Obama is to explain to those who have been faithful and running on their mortgages why they should be made to suffer for their reliability and consistency.
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