Obama's Homeowner Bailout Is Just A Drop In The Bucket

The government’s second iteration of a homeowner bailout is working better than the first one, but that’s not saying much: The first Hope For Homeowners program modified about 50 loans.

The second iteration–Obama’s plan–has resulted in 55,000 mortgage modification offers so far.  Unfortunately, that compares to the 15.4 million single-family homeowners that are currently underwater (20% of the total), which is up from 13.6 million at the end of the last year. 

Even homeowners who get help under the program aren’t getting saved permanently.  In fact, nearly half of them don’t even get their payments reduced:

NYT: In April, 59 per cent of loan modifications reduced payments, 29 per cent increased payments and 12 per cent of modifications kept payments steady… Borrowers with loan modifications that have not cut their payments tend to default again within six to 12 months.

Obama’s plan is now estimated to help 1.5-2 million homeowners.  When the housing market finally stops dropping, meanwhile, about 20 million homeowners will probably be underwater.

Bottom line: The plan is a hugely ambitious, wildly complex undertaking that is moving forward as fast as could be hoped.  And it’s just a drop in the bucket.

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