Locals: Mortgage plan fair for some, not for others

LYNN – Helmuth Dalence knows homeowners across the country need help getting out from under the crushing financial weight of ballooning mortgages but he wants to see federal mortgage bailout money going directly to borrowers, not lenders.”Freddie Mac and Fannie Mae helped nobody,” he said, referring to two mortgage industry players already aided by the government.Dalence was one of a half dozen local residents reacting Thursday morning to President Obama’s pledge to spend $50 billion to combat foreclosures. The actual plan won’t be unveiled for at least a week and might not be enough to prevent the housing market’s troubles from mushrooming further.Housing counselors say the government’s response to a huge surge in defaults and foreclosures over the past two years has been a failure. They blame former President George W. Bush’s administration for sticking with voluntary programs led by the mortgage industry and not committing public dollars to foreclosure prevention.They are hoping President Barack Obama will have more success, especially as foreclosures continue to grow. A Credit Suisse report published late last year forecast up to 10 million foreclosures by 2012, depending on the severity of the recession.Tony Palumbo knows plenty of people who are having problems paying their mortgages. He said some of them should not have bought the property they are now saddled with. A mainstay of Obama’s plan is lowering the amount of income homeowners nationwide devote monthly to their mortgage from 38 percent to 31 percent.Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is criticizing the Obama administration for taking too long to put together a housing plan.Frank also said he fears that $50 billion in funding “understates the amount that we will need” and called on lenders to halt foreclosures as the government develops its plans.Mortgage industry representatives oppose Obama’s idea of letting bankruptcy judges alter the terms of primary home loans. Last week Obama said it “makes no sense” that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.With limited resources, government aid should be targeted to the parts of the country that have been most severely crushed by the foreclosure crisis, said Deutsche Bank analyst Karen Weaver. Of the $50 billion, she said, “It’s not a huge amount of money.”The administration has several ways to spend money on foreclosure prevention. It could follow a proposal by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who has outlined a way for the government to give banks an incentive to reduce borrowers’ payments. Under that idea, the government would absorb some of the losses should the modified loans fail again.Or, the government could direct federal dollars to loan modifications. If a lender, for example, agreed to reduce a borrower’s rate, the government could subsidize another interest rate drop.But complicating matters, trillions of dollars in mortgages were divided up and sold as securities to investors around the world.”As long as we wait for these investors to do the right thing or somehow play nice, then we’re just going to see more and more homeowners enter foreclosure,” said Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago.