Watchdog: Obama’s mortgage relief efforts aren’t good enough – Yahoo! News

WASHINGTON — The Obama administration’s efforts to force the modifications of distressed mortgages, while laudable, is likely to fall far short because the foreclosure crisis has grown and threatens to dwarf government efforts to relieve it, a special congressional watchdog panel warned in a report released Friday.

The Congressional Oversight Panel , created to monitor how taxpayer bailout dollars are being spent, warned that the administration’s Home Affordable Modification Program, or HAMP, announced in February, seems sure to prove ineffective.

“Foreclosures continue every day as Treasury ramps up the program, with foreclosure starts outpacing new HAMP trial modifications at a rate of more than 2 to 1,” the report said.

From July 2007 through the end of August, 1.8 million homes were lost to foreclosure and 5.2 million more foreclosures were started, the report said. The HAMP program seeks to prevent between 3 million and 4 million foreclosures; on Thursday, the Treasury Department announced that its initial goal of having 500,000 trial mortgage modifications started by Nov. 1 had been met.

The congressional panel wasn’t critical of those efforts; it simply said that they’ll be swamped by changes in the housing market. The economic crisis, with an unemployment rate of 9.8 percent and rising, is pushing many more prime mortgages, those given to the most creditworthy borrowers, into default.

On top of that, a new class of exotic mortgages called pay option adjustable-rate mortgages and interest-only mortgages are due to reset to higher variable rates. These exotic loans were usually given to richer borrowers on fancy homes worth far less today than the value of the underlying mortgages. These mortgages are often too high-priced to qualify for government modification programs.

“It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now,” the report said.

Foreclosures also may rise to levels far beyond what HAMP anticipated because a growing number of homes are termed “underwater,” or worth less than the balance due on their mortgages.

“Today, one-third of mortgages are underwater, and if housing prices continue to drop, some experts estimate that one half of all mortgages will exceed the value of the homes they secure,” the report said. “Negative equity increases the likelihood that when these homeowners encounter other financial problems or life events cause them to move, they may walk away from their homes and their over-sized mortgages.”

Much will depend on whether home prices have bottomed, as some economists think is happening now. Housing prices have shown small but steady improvements in most markets since March, according to Standard & Poor’s Case-Shiller index.

Low long-term interest rates and the government’s first-time homebuyer’s tax credit have helped stabilize prices, Patrick Newport , an economist with IHS Global Insight, told Congress on Thursday. Home prices, adjusted for inflation, rose by 33 percent from 2000 to 2006. Today, prices are only about 13 percent above their average value in 2000, a sign that a brutal correction has taken place.

ON THE WEB

October Oversight Report on mortgages

Treasury report on modifications

MORE FROM MCCLATCHY

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Worse than subprime? Other mortgages imploding slowly

Homeowners tell how banks failed to modify mortgages

To ask a question about this story or any economic question, go to McClatchy’s economy Q&A

ARM – Adjustable Rate Mortgages
 by: Dan Lewis

Traditionally, homebuyers could look to two forms of mortgages – fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage.

What is an ARM Loan?

An adjustable rate mortgage [“ARM”] is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

“ARM” Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current real estate market, potential rate increases are a troubling issue. In areas where the real estate market is dramatically appreciating, homebuyers are using ARM loans to “get into” homes. Put another way, they are using ARM loans to get a mortgage payment they can afford without giving real consideration to rate increases in the future. Mortgage interest rates have been at historic lows for the last few years. What is going to happen to all of these people when rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.

About The Author

Dan Lewis is a mortgage broker with http://www.gwhomeloans.com – San Diego mortgage brokers providing home loans and refinances. Visit http://gwhomeloans.com/services.html to learn more about options for San Diego mortgages.

Today's Mortgage Rates... Duration  539 The Mortgage Meltdown... Duration  750

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