This is an excerpt from the Baltimore Sun ‘Second Opinion’ Blog, specifically Andy Green. Mr. Green points out the nearly 25% of all Maryland homeowners are underwater on their mortgages:
Today, the Obama administration is announcing a major new effort to stem the foreclosure crisis by focusing on two groups: the unemployed and the rapidly growing share of homeowners who owe more on their mortgages than their houses are worth. Getting banks to temporarily reduce payments for the unemployed — or to let them skip payments altogether for a time — fits in with many of the administration’s previous efforts to help those who find they are unable, because of the economic downturn, to meet their mortgage obligations. But the second part of the plan, helping those with so-called “underwater” mortgages reduce the amount of principal they owe, may be more difficult for many Americans to swallow.
The plan calls for the government to use $14 billion in Troubled Asset Relief Program money to provide incentives for banks to reduce the amount of principal homeowners owe and for the Federal Housing Administration to help underwater borrowers refinance into loans they can afford. New programs would also help borrowers who have second mortgages.
That may be galling to many who see it as a bailout of people who made bad decisions. In some cases, it is. But this is an occasion when we have to swallow our sense of economic justice out of self interest. Nearly a quarter of Maryland residents owe more on their mortgages than their homes are worth, the seventh-highest rate in the nation. In the Baltimore area, the figure is 17 percent. And nobody is forecasting the real estate market to rebound fast enough to change that in a major way for years. That means more homes are at risk of foreclosure, and more people are going to simply start walking away from their mortgages, risking a further cratering of the real estate market. If that happens, people who didn’t make foolish decisions and have kept up their obligations could be at risk if we don’t take action.
The key will be making sure we also enact sufficient regulatory reforms to make sure the excesses of the real estate boom aren’t repeated, just as the financial reform now working its way through Congress serves as some assurance that we won’t soon find ourselves bailing out investment banks again. But Treasury Secretary Timothy Geithner testified before Congress this week that the administration has no plan yet for how to reform Fannie Mae and Freddie Mac, the giant publicly backed companies that helped fuel the subprime mortgage boom; the White House has previously said that legislation dealing with that could be more than a year off. We can’t afford to wait that long.
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