The Scope Of The US Mortgage Rescue Plan Seems A Bit Off

Here is a look at an executive summary of the recently launched mortgage rescue program . My opinion on the plan hasn’t changed from when I first discussed it a few weeks ago, so I won’t rehash it here. However I will say the administration’s claims of the scope of the program seem a bit off (helping one out of every nine), when you consider that it only addresses a narrow subsection of the mortgages in trouble whether it’s due to the financial state of the borrower, the mortgage not being held by the GSEs, etc.

When one out of eight mortgages are in some sort of trouble, it doesn’t seem feasible that nearly all of them are going to fit within the parameters established by the mortgage rescue plan. The numbers just don’t all add up.

Furthermore as I’ve been saying since the summer of ‘07, the issue here is one of affordability, you simply can’t modify, refinance, rescue, et al, someone out of a mortgage they can’t afford without subsidizing it indefinitely. Between rising unemployment and people who overspent and/or used exotic mortgages, many folks simply aren’t going to be able to stick with this program.

For more on this here is a link to a WSJ graphic depicting who the plan can and cannot help.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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Comment by jlounsbury59

2009-03-08 15:26:40

The mortgage assistance plan will be a failure if it tries to help the majority of those in trouble. A few worthy “rescues”, yes. Try to bail everybody out, no. Home prices have to get back down to the historical ratio of average price to average income. We are still 15-20% away from that. If we try to support prices at a higher level, the recession will be extended and possibly deepened.

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