The Housing Rescue Plan

I'll admit I'm disappointed. I am underwhelmed by this package.

Will it help some additional homeowners? Yes, absolutely. Will this have a serious impact on the overall housing market? I seriously doubt it.

First, the plan is that if you owe more than your home is worth, you'll potentially be able to refinance at a lower interest rate. There are financial incentives to both banks and mortgage servicers to do these loan modifications.

Here's where I see the problems.

First of all, the new first mortgage must not exceed 105% of the current value of the home. The problem is, most of the people in trouble are much further in the hole than this. If you bought your home three years ago, put almost no cash down and have seen the value of your home decline by 40-50% this plan is of no help to you. And, that's a pretty common scenario in this area.

This plan is still entirely voluntary on the part of the lenders. Like every other plan announced thus far, it depends far too much on banks being willing to participate. There is a little carrot here, but it's a very small carrot that seems unlikely to be very effective.

The plan still does not require any reduction in principal. Until the banks are required to reduce the principal, to take their lumps, I don't believe this problem gets fixed.

And, maybe just as importantly, as long as the banks books continue to not reflect the real value of homes, I don't believe they can ever recover, nor will their stock prices.

It's a wishy washy plan and I'm disappointed.

The $8000 tax credit in the stimulus plan will do more good than this.

2/20 7:30 p.m. update:

I've been reminded that the details aren't going to be available until March 4th.

I've also been reminded that there will be a mandatory component for those banks that took TARP money.

I hope I'm wrong and this is wildly successful!