The Homeowner Affordability and Stability Plan announced by president Obama’s administration in mid-February is yet another example in this crisis of well-meaning legislation that largely misses the point.
The good thing about it is that it is at least attempting to tackle the root of the problem: mortgages. The bad thing about it is that it is tackling the wrong ones. The $275 billion plan is two pronged: first, it will allow mortgages held or securitized by Freddie Mac and Fannie Mae that do not account for more than 105% of the current value of the property to refinance. Second, an interest modification programme will enable interest rates on adjustable rate mortgages (alt-A option ARMs) to borrowers at risk of foreclosure to be reduced for the next five years.
