Mortgages are in big trouble despite the measures taken by the Fed and the government. People are stuck with mortgages that are greater than the value of their homes causing a major overhang and a continued cycle of real estate price depreciation. With the action the Obama administration would like to take, the problem amounts to $350B, according to the L.A. Times. That’s if banks and the federal government pay down principal for qualifying homeowners. Currently, mortgages are 125% of home values for a lot of Americans; stimulus can’t solve that problem in the long-run. That’s why the government is trying to support home prices. Since 2009 they have initiated HARP, Home Affordable Refinance Program, which allows homeowners to refinance certain loans. Additionally, the Senate has just drafted a bill to give the right of way to wealthy foreign home buyers to obtain a visa if they purchase a home that is valued at $500,000 or more with the intention of buoying home prices in hard hit depreciating areas like California.
According to the article, 15 million loans are valued higher than the price of the underlying house it’s financing. That spells long term financial troubles for the U.S. economy. Unless the federal government steps in to write down the principal value of the mortgages or makes a more efficient means to refinance than any quantitative easing and initiative to keep long term rates low will be only good for new entrants and foreign homebuyers.
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