Obama Administrations Offers Aid To Jobless Homeowners
MICHEL MARTIN, host:
I'm Michel Martin, and this is TELL ME MORE from NPR News.
Just ahead, at first he wanted to be rich so he went into business. But then he wanted to change lives, so he went back to school, or rather, he started one: the Bronx Center for Science and Mathematics. The story of one of the people on the frontlines of education reform is told in the new documentary, "Whatever it Takes." We'll have more on that just ahead.
But first, we are exploring new efforts to help Americans stay in their homes. With unemployment hovering close to 10 percent, millions of homeowners find themselves unable to make their monthly mortgage payments, compounding that, property values have dropped so much that as many as one in six homeowners are now underwater, which is to say that they owe more money than their homes are worth. And that's led some to just abandon those homes entirely.
Now the Obama administration is refining its efforts to help struggling homeowners. Joining us to tell us more is our money coach Alvin Hall. He's with us this week from London. Welcome back. Thanks for joining us.
ALVIN HALL: I'm glad to be here because this is a subject that affects so many people I know. So, I'm very glad to talk about this.
MARTIN: But, you know, we've talked so much about various methods to try to help homeowners. What's different about this initiative? What's new here?
HALL: In previous times, the government looked at simply reducing interest payments. That was their major initiative. But now they're trying to do two things: One, they're trying to give forbearance to people who are unemployed. For three to six months you'll have to make no mortgage payments or a substantially reduced mortgage payment.
And the other thing they are trying to do is to forgive part of mortgages. If you've made all your mortgage payments on time and you are severely underwater, the government will help you work with the lender in order to relieve yourself of some of that mortgage.
MARTIN: So it says that the program is called making homes affordable. It's for lenders who participate will be required to slash the payments up to six months. Do I have that right?
MARTIN: Okay. And apparently - but everybody's not included. In fact, the president said point blank, we can't stop every foreclosure. So who is not covered by this? Who would not be eligible for this kind of help?
HALL: The people who are not covered are people who invested in real estate, speculators and real estate, people who are living in homes that are worth more than a million dollars, or vacation homes, they are not covered.
But there are also some subtleties to the law that disturb me a bit. For example, I would not be covered if I, for some reason, couldn't make my mortgage payments because you have to be covered by unemployment insurance in order to be eligible for the forbearant or for the reduced mortgage payment, because your payment cannot exceed one-third of your pre-tax income, which is mostly what unemployment insurance covers.
MARTIN: Well, wait a minute, why wouldn't you be eligible if this if you were in this situation? Why, because you're self-employed that you don't get unemployment insurance?
HALL: Because I'm self-employed. Exactly. And therefore, if I for some reason got into trouble, this part of it would not cover me at all. So all of these things have these little, I would say, not tricks, but little items in them that makes me think that maybe the people who came up with this were not totally in touch with the reality of everyday people's lives.
MARTIN: Well, also, that program is limited to homeowners who have not missed more than three payments.
HALL: That's right.
MARTIN: And as we know, many people have been unemployed for far longer than three months by now, which they may, even if you followed the financial planners' advice to say you should have six months of expenses in an emergency reserve. By this point, a lot of people will have exhausted that. So...
HALL: Exactly. Why didn't they make this nine months? Nine months to a year would have made much more sense to me. I understand that it would not have been politically very positive for them. But that's the reality. It's taking longer and longer for people to get jobs.
MARTIN: On the other hand, Alvin, there are those who are making the argument that all of these efforts are just for stalling the inevitable. And that part of the reason to limit it to people who aren't as severely in distress as many people are is that these people are going to lose their homes anyway. That's the sad, harsh reality. That if the government were to do this to extend this aid to more people, it would just be throwing good money after bad. I know that sounds harsh for somebody who has worked all their lives and done what they felt was their best, but what about that argument?
HALL: I think that argument is valid for people who really did overreach, who really did try to live off the mortgage to support a lifestyle buying flat screen television. Why should we go in and support those? But a lot of people just caught into bad situations.
Let me give you a classic example. I have a very good friend. He and his wife work very hard. They decide that, you know, they could reach their American dream, so they bought a new house and put down 20 percent down payment on that property. Unbeknownst to them, the market price of the property had been based on comparables in a suburb that was far away.
As the market collapsed, their property values have dropped by more than $150,000 just because now the comparables are a poorer community that's near to where they're living. Is that their fault? No. That's the real estate agent's fault for pricing the property so high. Yes, there should have been a greater element on their part of buyer beware, but these are people who've worked hard.
I think in that case, the banks should work with them, at least to find some way to keep them from losing their home or to enable them to sell the house in a short sale and walk away from it.
MARTIN: Well, but that does raise a question. A lot of people would say, why isn't it your responsibility to exercise due diligence in what is probably the biggest investment you'll ever make?
HALL: Michel, I agree with this in theory. However, not everybody has access to reliable financial information. Some people who are getting on the property ladder for the first time are really quite na�ve about these things and they go with a family friend who helps them out, who they think is more knowledgeable, but in reality may not be as knowledgeable. You needed more information. But that information would not have been available to them if they had gone to a standard lender at all.
MARTIN: So, Alvin, at the end of the day, do you feel that this program is a net positive or is it a wash? I mean, this program generated huge headlines when it was announced just a couple of days ago. Do you think those headlines are justified? Do you think it will have the impact that the administration is hoping and saying that it will?
HALL: I don't think it's going to have the impact that the government hopes. The government hopes that it will be able to help three to four million homeowners by 2012. I think the key word voluntary on the part of the lenders makes this program probably not capable of meeting the goals. As long as it's voluntary and not compulsory, the lenders will do what's best for them. Very few of them really are going to help the homeowner who is really up against the wall until it is almost too late.
MARTIN: Alvin Hall is our regular contributor on matters of personal finance and the economy. He's our money coach and he joined us from London. Thanks so much for being with us, Alvin.
HALL: Glad to be here.