NPR: Some people in the mortgage industry think the president's plan is bigger and better than anything they've seen to date. Howard Glaser, an industry consultant and former Housing and Urban Development official in the Clinton administration, is one of them.Here's another who thinks the plan is a good one and yet another, who likes some aspects of the plan.
"For the last two years, the government has been employing a squirt gun to put out the forest fire in the housing market," Glaser says. "The Obama plan is a howitzer aimed at the problem, by contrast."
Flipping The Calculation
Glaser says previous government and bank plans designed to modify loans haven't worked because it made no financial sense to most of the parties involved.
Even if the borrower — the homeowner — could afford a lowered payment, Glaser says most investors weren't game because investors stood to make more money letting a home go into foreclosure and reselling it than working out a deal with the homeowner.
And the mortgage servicer — the company hired to administer the loan — faced a similar situation. Modifying a loan required more time and paperwork, so the servicer actually stood to lose money.
Obama's plan addresses these issues by throwing money at them, Glaser says. It will pay loan servicers to modify loans, and it essentially will subsidize modified mortgages. In other words, the government will kick in money to make sure homeowners pay no more than 31 percent of monthly income — whether it's less in interest, or less in the principal loan amount.
"It flips the calculation, and in the vast majority of cases will make it a better deal for the investor to modify the loan than seek foreclosure," Glaser says. "That economic driver is everything."
Shaun Donovan, HUD secretary:
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