Are aid plans doing enough for struggling homeowners?

ByABC News
October 8, 2008, 10:46 PM

— -- Housing experts and economists are asking if homeowner assistance programs are doing enough to help the ailing housing market in addition to individual borrowers.

Programs already in place:

Provisions in the $700 billion rescue Congress passed last week could help homeowners stay in their homes through loan modification.

The Hope for Homeowners program included in this summer's housing bill gets distressed borrowers who meet certain criteria into fixed-rate, federally insured loans.

A settlement announced Monday by Bank of America allows 400,000 Countrywide borrowers to modify loans.

But experts say these programs lack the teeth, efficiency and breadth to bring a significant number of loan modifications.

"None of these things by themselves are going to solve the problem," says Kathleen Day of the Center for Responsible Lending. "Every one of them is an incremental step in the right direction." A major concern, she says, is that for lenders these plans are voluntary.

Some type of foreclosure notice went to 303,879 properties during August, a 27% increase from August 2007, according to RealtyTrac.

Others are proposing plans that attempt to address a larger number of home loans.

Sen. John McCain, R-Ariz., presented a plan in Tuesday's presidential debate that would buy bad mortgages and put those homeowners into loans they could afford.

It would use authority already granted by Congress to modify loans through the conservatorship of Freddie Mac and Fannie Mae as well as through the Federal Housing Administration.

Last week, Christopher Mayer and R. Glenn Hubbard of Columbia Business School released a plan that would let all homeowners refinance their primary residence into a 30-year, fixed-rate mortgage at 5.25% with an agreement that it could not be refinanced to a lower rate. It was published as an opinion piece in The Wall Street Journal.

"I think there has been, from a policy perspective, too much focus on foreclosures," Mayer says. "We could stop every single foreclosure today, and house prices would continue to fall."