Herald Today: Mortgage plan garners praise, caution

By DUANE MARSTELLER and BRIAN NEILL - Bradenton Herald Staff Writers

MANATEE - President Obama's ambitious mortgage-relief plan drew cautious praise and optimism from local experts, who still warned Wednesday that it won't rescue everyone in foreclosure or facing the threat of it.

"It's a good start, but it won't solve everything," said Dawn Bates-Buchanan, a Gulfcoast Legal Services attorney in Bradenton who represents borrowers facing foreclosure.

The plan, which Obama unveiled in Denver, calls for spending $75 billion in hopes of sparing as many as nine million American homes from foreclosure. It would do that through a mix of lender incentives and relaxed refinancing rules.

The plan would let borrowers who are "underwater," or owe more on their mortgage than what their home is worth, to refinance into more affordable loans even if they aren't behind on their mortgage. That potentially could help four to five million homeowners, including thousands in Manatee who bought during the housing boom's 2004-06 height only to see their property values plummet when the market crashed.

Chris Smith, mortgage banker with Real Estate Mortgage Network in Bradenton, thinks that holds promise for the local market - if it really happens.

"Unfortunately, unless some action is taken such as this, it doesn't matter if rates go to 3 percent, unless there's something like this, there's no equity for people to be able to refinance their homes," he said.

Manatee home values fell by 8 to 15 percent in 2007 and by a similar or greater amount last year according to preliminary tallies, said Dale Friedley of the Manatee County Property Appraiser's office. Home values are being driven down by distress sales of foreclosed or foreclosure-threatened properties, he said.

And a growing number could be entering the market: Lenders have filed 866 foreclosure suits in Manatee County Circuit Court so far this year, up from 616 during the same period in 2008, court records show.

But the refinancing option also comes with numerous strings attached that will limit its use locally, experts said.

Only original purchase loans on primary residences will be eligible for the program. The original loan's outstanding balance can't be more than 5 percent more than the home's appraised value. And it applies only to loans owned or guaranteed by Freddie Mac or Fannie Mae, which account for about half the U.S. mortgage market.

The program "still leaves half of them out in the cold," Bates-Buchanan said.

Alan Tannenbaum, a Sarasota attorney who has volunteered through a Florida State Bar program to represent foreclosure clients on a pro bono basis, thinks excluding owners of investor homes or second homes is short-sighted.

"There is significant investor and second-home ownership of homes and condos in this market," Tannenbaum said. "Without bolstering the investor and second-home ownership market, foreclosures will continue in our market and as a consequence so will the downward pressure on home and condo values. We may not want as a society to ‘reward' speculators and owners of second homes, but the impact of this policy hits markets like ours disproportionately."

Another component of the plan would pay lenders up to $4,000 for each loan they modify to avert foreclosure. Smith questioned whether that will be enough of an incentive.

"Until they do that, the banks will try to do their traditional loan modifications, which it's been proven is not working," Smith said. "More than 50 percent of the homeowners that went into (previous) loan modifications to avoid foreclosure are back in default."

Bates-Buchanan agreed, saying lenders likely will take the incentive on lower-balance loans, but not higher-priced ones.

Anne Lee, retail banking president for Florida with First Bank, said she is encouraged by the fact that Obama's mortgage plan addresses various groups of people in different circumstances.

"I'm glad to see a variety of components to the plan," Lee said. "I also think that the ability for people to lower their payments - remembering that people still have to qualify for those programs - but the ability for people not to have to go through foreclosure and lose their homes by lowering their payments, that's an excellent idea."

The proof will come when the details come out in March, Lee said. That will be a determining factor in how far banks are willing to go to rework customers' mortgages, she said.

"Banks are trying to work with consumers today to the best ability they can, but the banks will always be concerned with creditworthiness and if they are doing the right thing," Lee said. "It will really depend on what the criteria truly are as to how banks decide to deal with those criteria. But I believe banks don't want to take the homes, they want to have a paying consumer. So if the banks are able to do it the banks will do it."

Overall, though, Lee said she's encouraged.

"I feel optimistic that once the details come out, everybody is going to be all over it and trying to work with consumers and trying to get back on track again," she said.

But Bradenton attorney D. Turner Matthews said he found little to be enthused about.

"I don't see this thing is anything but puffing, and trying to get us comfortable with institutions we know have failed," he said. "I don't think this plan makes any sense. It's going to build confidence in this country? Who's got confidence in any of these people, especially the banking industry, because I deal with them all the time."