Taypayer Handouts and Ripoffs

New Mortgage Plan Still Has Holes, White House Concedes

March 26, 2010

McClatchy Newspapers - The White House Version 2.0 mortgage-relief plan announced on Friday is a recognition that the moribund housing sector poses a grave threat to the nation's economic recovery. By the administration's own admission, however, the effort may save at best only a third of the homes facing foreclosure in coming years.

The new measures, funded through $50 billion [of TARP funds] already set aside for mortgage relief, seek to provide three-to-six-months of temporary help for newly unemployed homeowners in making mortgage payments.

They also ease the refinancing of mortgages now valued well above the current home price — so-called underwater mortgages — and give incentives to issuers of piggyback mortgages to get out of the way and allow a mortgage modification to happen.

The effort to have banks forgive principal gives greater incentive for homeowners in foreclosure-troubled states such as California, Florida, Arizona and Nevada to stay in their homes rather than hand the keys back to the bank, which would swell the glut of vacant or bank-owned homes on the market — and further depress home prices.

The White House was careful not to raise expectations too high, noting that up to 12 million foreclosures still could occur during the next three years. The new program seeks to help at most 4 million of those homeowners.

One in four homeowners is thought to be underwater, or owe more on a mortgage than the home's underlying value, according to researcher First American CoreLogic, a number that threatens to swamp refinance efforts.

Friday's proposals follow a steadily growing drumbeat of criticism about administration efforts to prod lenders and investors in housing securities to modify distressed mortgages aggressively. After a year of effort, fewer than 200,000 permanent modifications have taken place.

"We're trying to adjust to changing circumstances over time," Assistant Treasury Secretary Herbert Allison explained during the White House rollout of the upgraded mortgage relief program.

Advocacy groups have criticized the administration's prior effort as too timid. Elizabeth Warren, a Harvard University professor who heads the special Congressional Oversight Panel that oversees the expenditure of taxpayer bailout money, for months has warned that the Home Affordable Mortgage Program wasn't even keeping up with the pace of new foreclosure notices.

Lawmakers too have been pressuring Team Obama to give more aid to unemployed homeowners, especially those with good payment histories.

"While clearly there are some people in trouble on their mortgages who bear some of the responsibility for their plight, this is not true of the unemployed who are fully deserving of this help," said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

The new program captured headlines Thursday night when word leaked of help to unemployed homeowners. Once the details came out Friday, however, it delivered less than expected.

Lenders and loan servicers who participate in the government's program are required to offer temporary relief, but it'll be help for a limited universe. First, borrowers must seek this help, must be collecting unemployment insurance and must be less than 90 days late on their mortgage payments.

That appears to exclude many of the record 6.1 million Americans who have been jobless for 27 weeks or longer.

"It's the first real step they've made on helping the unemployed, but it is not enough," said Michael Calhoun, the president of the Center for Responsible Lending, an advocacy group based in Durham, N.C.

Citing only "modest steps," Calhoun said the administration is navigating a political environment where taxpayers are sick of bailouts of any sort.

"The administration has been pretty sensitive to criticism that they're helping borrowers too much. I think that's reflected in this modest plan," he said.

Republicans weren't shy about labeling the effort another bailout.

Sen. Orrin Hatch, R-Utah, said in a statement that the new efforts were unfair to people "who work hard, pay their bills on time, and raise good families. They feel like they are being penalized for being responsible, and that's not right."

Some of the most important changes in the reworked Obama plan are technical.

A program to refinance underwater mortgages has been on the books for several years, but had virtually no bank participation. That's because there were few lenders willing to refinance or reissue such mortgages and risk consequences to their own creditworthiness if these loans went into default because of the sour economy.

The new Obama plan, however, will grant an important exception from such credit hits if a lender extinguishes an old mortgage, forgives principal and places the new loan into a Federal Housing Administration program.

Another barrier to modification has been second mortgages, especially in states where housing prices soared. Issuers of these second mortgages had little incentive to extinguish their claim and help the borrower and issuer of the primary mortgage modify mortgages.

Under the revamped effort, the government will double payments to second lien holders that agree to extinguish their claims. Before, they got 10 cents on the dollar for doing so; now they'll get 20 cents on the dollar. It doesn't sound like much, but if the mortgages goes into foreclosure, they get nothing.

There's also a danger that Friday's plan could foster unrealistic expectations.

"Borrowers are calling today from the announcement, and it could be fall before you see some of this executable," cautioned Faith Schwartz, who runs Hope Now, a trade association that represents lenders and loan servicers. "The good news is there are a few more tools."

Much of what was announced Friday followed intense discussions with the mortgage finance community. Sean Dobson, the chief executive of Amherst Securities, was part of that discussion, and he praised the administration's willingness to listen.

"It's a fatal wound to the economy if they don't do something about it . . . Nothing yet has been done," Dobson said, suggesting a negative loop where the housing crisis hits the economy, which creates more job losses, which add more homes to the foreclosure rolls. "This is the first step we've seen to interrupt that feedback loop."

'Cash for Refrigerators' Kick-starts Appliance Sales

March 26, 2010

AFP – Americans are lining up to snap up rebates for "cash for refrigerators" and "dollars for dishwashers," as part of a government program aimed at both economic stimulus and reduced emissions.

The effort, modeled after the "cash for clunkers" auto trade-in program, includes nearly $300 million to encourage consumers to dump older appliances in favor of newer, energy-efficient models.

US officials say the effort, a small part of the nearly 800-billion-dollar economic stimulus measure enacted last year, will help reduce the US carbon footprint because of the heavy electrical consumption of big appliances, and at the same time pump money into the economy that can create jobs.

One one level, the program, which is being administered by individual states, appears to be succeeding in jump-starting sales.

In Iowa, which offered rebates up to $500 on refrigerators, washing machines and dishwashers, the $2.7 million in federal funds was exhausted in less than a day by stampeding consumers. Minnesota needed less than three days to give out $5 million in appliance rebates.

In Ohio, which launched its program Friday with $10.5 million, the state agency administering it said it "anticipates the rebates will be exhausted in a few weeks."

As of this week, New York still had $5.6 million remaining from its 18.7 million dollars even though some waited in line on the opening weekend.

"It's been a boon to consumers and retailers," said Francis Murray of the New York State Energy and Research Development Authority.

The biggest of the state programs will be launched in California April 22, with $35.2 million. And more states will be launching rebate programs in the coming months.

To qualify for rebates, consumers must buy appliances which meet energy standards set by the federal government and are up to 30 percent more efficient than existing models. Some states are offering extra rebates if consumers recycle old appliances.

Some see the program as a natural follow-up to the "clunkers" program, which boosted new car sales, and in turn lifted auto production and jobs to help pull the US economy out of its slump.

Economist Ryan Sweet at Moody's Economy.com said the appliance program probably had an impact on sales and orders for durable goods, big-ticket items expected to last at least three years that are critical to the manufacturing sector.

"Eight states launched rebate programs last month, which would help explain some of the strength in sales at both electronic and building material stores," he said.

"This also argues for strong gains in subsequent months and lends some upside risk to our forecast for real durables spending."

Joel Naroff at Naroff Economic Advisors said that while the clunkers program appeared to have a positive economic impact, the effect of the appliance program may be far less. He said the impact may be reduced even more for appliances made outside the United States.

"On a $600 washing machine, the retailer may make $100 but the manufacturer will make $300," he said. "But if the manufacturer is on the other side of the world, that's $300 that goes out of the economy."

University of Delaware economists Burton Abrams and George Parsons argue that both the clunkers and appliance programs are lemons for taxpayers, mainly because they are destroying otherwise productive assets.

The economists say societal loss of the auto program was as much as $2,250 per vehicle because "the value of resources used exceeded the value of resources created. In effect, we shrank the economic pie to improve the conditions of some workers and perhaps some sectors other than labor."

For appliances, they say the overall loss is more modest, at $6 for every $100 invested.

"In essence, the taxpayers... are putting $100 into the pot on behalf of society as a whole," they concluded. "Society gets back $9 in environmental benefits. People who buy refrigerators, on average, get $85 in value from the cash transfer. The other $6 is lost to everyone."