As President Obama last week headed west to Nevada to promote a $1.5 billion program that would hone in on five states — Nevada, Florida, Michigan, Arizona, and California — hit hardest by the housing bust, concerns for a real overhaul of the Treasury’s Making Home Affordable, in light of the program’s disappointing first year in creating permanent mortgage modifications, are being voiced anew.
The New York Times published a cogent editorial today praising the administration’s efforts to work with state housing agencies to develop programs that address problems in hard-hit housing markets, but argued that this latest step should be taken to scale nationwide, rather than in targeted markets. Moreover, it addressed the ever-allusive mortgage modification by way of principal reduction — a plan of action long advocated by housing policy experts like Barry Zigas, who has written that “principal modifications are emerging as the key variable in creating lasting, stable mortgage modifications.”
This tack has been resisted by the administration, even though mortgage modification by reducing interest rates resulting in monthly payment reductions doesn’t really fly with folks who are unemployed or underwater. The Times editorial states:
Unemployed homeowners often cannot make even reduced payments and underwater borrowers need principal reductions to succeed over the long run, not lower rates.
Of course it’s the banks, and subsequently the administration, that have resisted principal reduction, but it will be interesting to see how this plays out, and how long the administration takes this course of action.