Saturday, April 4, 2009

HELOCs and The Housing Plan

The housing plan would be working great if not for all the HELOC and HEL issues The lenders do not want to resubordinate their loans. They want them paid off, so (probably) they can be subsequently frozen. But this is causing more problems for people who want or need to refinance. In this article titled Homeowner-Aid Plan Caught in Second-Loan Spat from the Wall Street Journal illustrates some of the problems. But first let's take a look at this great graph from the article about who is lending what -

Now let's take a look at the article -

The Obama administration's $75 billion effort to help troubled homeowners avoid foreclosure has hit a stumbling block: a fight over how to aid borrowers who have more than one home loan.

The Treasury Department, scrambling to address the problem, is trying to persuade lenders to forgive or greatly reduce so-called second liens. But that effort has sparked a fight between investors who own securities backed by first mortgages and banks that hold second mortgages over how losses should be shared.

A failure to resolve the impasse could blunt the impact of President Barack Obama's housing plan, which is designed to tackle one source of the financial crisis -- the spiral of foreclosures and falling home prices. About half of seriously delinquent borrowers have a second mortgage debt, according to Credit Suisse.

Administration officials had hoped to announce a plan this week with the support of bankers, homeowner advocates and investors, who include pension funds, insurance companies and hedge funds. Instead, they find themselves shuttling proposals between warring parties.

The Treasury is "actively working" on the second-lien issue and will announce "something within the next few weeks," said department spokesman Andrew Williams.

This has been a problem since the March 4th release of the housing plan. Things are messy and then you have a second round of people who need to approve the negotiations. The administration was hoping that the second liens should be extinguished. But the incentives to do that do not really exist. Hopefully the upcoming announcements give better guidelines. Of course, we will be waiting and watching...

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