Aug 10
29
Criticism Over Bail Out Plan
Is the Obama Making Homes Affordable Plan a Disaster?
Critics of the Obama administration’s $75 billion program to protect homeowners from foreclosure increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes, and some economists and real estate experts now contend it has done more harm than good. They say many desperate homeowners have sent payments to banks in efforts to keep their homes, wasting dollars they could have saved in preparation for moving to cheaper rental residences.
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system. “The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”
Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.
