Mortgage markdowns

Roughly 20 percent of homeowners are underwater on their loans, and there's just no easy fix. The administration has tried a loan modification program that's had only limited success, so now comes a new plan that reduces mortgage payments for folks who are unemployed and also allows homeowners to refinance into smaller, government-backed loans. Based on what was said at a briefing today, speculators, owners of million-dollar homes, and those who default on vacation properties need not apply (though I'm not sure what would stop them). From the WSJ:

The administration is in a tight spot. It wants to respond to criticism that it hasn't done enough to save struggling homeowners but also hopes to rebut charges that it is bailing out people who were irresponsible. At the same time, the administration wants to avoid encouraging borrowers who can afford their payments from defaulting in an effort to get a deal.

As with all the efforts at reducing the number of foreclosures, this one will be limited in scope and cumbersome to implement (lenders come in all shapes and sizes and not all of them will make this easy). It might do some good, but there are still a lot of people who don't have the financial ability to be homeowners, and no one program is going to change that. Here's Megan McArdle's take:.

The temporary payment reductions only seem to last 3-6 months. Given the long-term unemployment problems we're now facing, I'm not sure how much this will help--and if it does help, it seems likely to assist only the least needy. In fairness, however, it at least keeps people with a brief job loss from racking up arrearages that send them into an otherwise unnecessary foreclosure.