Obama Touts Housing Plan as Markets Continue Decline

President Obama laid out his $275 billion federal housing bailout yesterday. The plan seeks to give incentives to lenders to modify mortgages and may give bankruptcy judges more power to force "cram downs" on mortgage balances.

Michelle Malkin has a post, with photos, of yesterday's anti-entitlement protests in Arizona against Obama's "massive housing entitlement."

But check the Wall Street Journal's piece, "Some Americans, Underwater but Ineligible, Are Riled Up":

President Barack Obama's new foreclosure-prevention plan is already sparking outrage from some Americans who won't qualify for federal aid -- and from those who resent having to foot the bill for those who do ....

The housing plan, which President Obama outlined Wednesday in Phoenix, will allow homeowners who have little or no equity to refinance their homes, something that has been nearly impossible to do under current rules. It also establishes standards for government-subsidized loan modifications for borrowers in subprime loans and endorses a provision that would allow bankruptcy judges to reduce the principal on primary residences.

While real-estate professionals applauded the refinance provisions, which the White House says could help four million to five million homeowners, lots of borrowers wouldn't be eligible. For example, the refinance provision is limited to borrowers whose mortgages are owned or securitized by Fannie Mae or Freddie Mac, the government-backed mortgage companies.

That essentially shuts out wealthy borrowers who would like to refinance but can't because they own expensive homes financed with so-called jumbo mortgages, which are too large to be owned by Fannie Mae and Freddie Mac.

Steve Rosenberg, a 44-year-old institutional stock broker in Chicago, has been trying to refinance his $815,000 option adjustable-rate mortgage for months. But his bank is requiring him to put an additional $150,000 of equity into his home, something he is reluctant to do because his income has been cut in half over the past year. For jumbo borrowers, he said, the government's message is, "You're on your own." Mr. Rosenberg saw little consolation in the president's initiative. "The only recourse I will have is a bankruptcy judge."

Congress has endorsed a provision that would allow bankruptcy judges to modify all types of loans. The White House's proposal would limit such write-downs to existing mortgages under Fannie Mae and Freddie Mac loan limits.

Some borrowers in hard-hit markets say they also are excluded. That is because the foreclosure-mitigation plan allows borrowers with little or no equity to refinance a first mortgage for up to 105% of the property's current market value. For some affluent borrowers heavily underwater in markets like California, that isn't enough. "We can afford to make our payments, so no one is going to help us," said Jill Wong, who has watched the value of her Modesto, Calif., home drop to around $350,000, from the $605,000 she paid four years ago. That wiped out her 20% down payment and has left her with a mortgage that has a 125% loan-to-value ratio.

I'm in the Southern California market, and I'll be looking to refinance next year. We'll see what happens, but today's Los Angeles Times reports that "Southern California Home Prices Fall to 2002 Levels."

More reports from the housing front later, dear readers ...