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April 29th, 2009 (Modified on May 1st, 2009)

Now you’re bailing out second mortgages, too

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Our friend HASP — the Housing Affordability and Stability Plan — is back in the news. We’ve written a fair amount about HASP, and it’s safe to say that we’ve been largely underwhelmed (see here, here, and here). We didn’t see much point in bailing out irresponsible homeowners for taking on too much debt.

Now we find ourselves even more unimpressed as our tax money will help bail out irresponsible homeowners with second mortgages as well:

The Obama administration unveiled an expansion of its $75 billion foreclosure prevention plan yesterday, providing new subsidies to mortgage lenders and investors.

Under the expanded plan, some homeowners could see their payments fall significantly and the interest rate on their second mortgage pushed down to 1 percent. The announcement comes nearly two months after the administration launched the housing program, called Making Home Affordable. While officials said some borrowers have already received help, the foreclosure rate is rising and it could be months before the program begins to have an impact.

The Post incorrectly refers to the “Making Home Affordable” plan; it’s still called HASP, but the government’s website for HASP is, confusingly, MakingHomeAffordable.gov. But back to the article:

“Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind,” Treasury Secretary Timothy F. Geithner said in a statement.

A lot of people would dispute the use of “responsible” in connection with this plan, and we’re not the only ones:

Responsible homeowners? Responsible homeowners wouldn’t have taken out a second on their home equity if they couldn’t afford it. Seconds get used for lots of purposes, including debt consolidation and home improvements, but all of these purposes are entirely voluntary. No one held anyone at gunpoint and forced them to take a second mortgage.

The Wall Street Journal saw this coming back in early March, when they noted that

Many borrowers are underwater, owing more on the mortgage than their home is worth. Declining home prices are of course a big reason. The other big reason is that many of them traded home equity for cash, in some cases several times, while taking on larger mortgages. To say that all troubled borrowers did cash-out refinancings and spent the money on kitchen remodeling, jet skis and trips to Cancun would be unfair. It would be equally unfair to taxpayers not to recognize how common such deals were during the bubble.

Don’t forget that the FDIC said that it’s “simply impractical” to evaluate “each and every” loan eligible for the bailout. Looks like we, the taxpayers, will continue to reward those who put the ‘liar’ in liar loans.

2 Responses to “Now you’re bailing out second mortgages, too”

  1. Mark Says: April 30th, 2009 at 12:21 pm

    I took a second to keep from paying PMI as I moved to Mass. A year later I lost me job and while I’m working again, my new, lower pay level makes things difficult at best. A bailout would be nice or at least a chance to refi one of the mortgages would be good.

  2. Paul Havemann Says: April 30th, 2009 at 3:31 pm

    Borrowers with ‘piggyback’ seconds, like you, are the intended beneficiaries of this program, so you’ll want to check out the details of the revised program. If you qualify, the rate on your second could be reduced to 1%. Good luck — and let us know how you make out.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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