- The Washington Times - Wednesday, February 18, 2009

MESA, Ariz., (AP) — In one neighborhood here, every block has at least two for-sale signs out front. Many homes have broken porch lights and crispy brown lawns. One house has graffiti on the door.

With one of the highest foreclosure rates in the country, Arizona makes a fitting backdrop for President Barack Obama’s new housing program, to be unveiled Wednesday in a speech at a local high school. And local residents have more hope than confidence that the $50 billion plan will be enough to end the nation’s housing recession.

“I’m hoping Obama will do good,” said Tim Iverson, who was laid off from his construction job in November.

Iverson worries about losing the house he owns jointly with his mother. Four years ago, when they refinanced their home, it was worth $212,000. Today, its value is about $160,000, and the two can barely make their $1,400 monthly mortgage payment on her Social Security check and his unemployment benefits.

But Obama’s plan is not expected to mandate massive changes to stop defaulting mortgages. Rather, it is likely to be a set of incentives designed to entice lenders to modify loans.

The sweeping measures are expected to funnel government payments to mortgage companies, which will use that money to reduce borrowers’ interest rates and therefore their monthly payments, according to several people briefed on the plan.

The guidelines of how the government would determine who would qualify were not clear Tuesday night. But the plan was expected to try to bring borrowers’ monthly payments down to around 30 percent of their pretax pay.

If lenders don’t participate, they are likely to face something they have long opposed: the gavel of a bankruptcy court judge. Obama is expected to endorse changing the law to allow bankruptcy judges to alter the terms of a borrower’s mortgage.

The mortgage industry argues this added risk will lead to higher interest rates.

However, Obama still will face a daunting task explaining to Americans who behaved responsibly during the housing boom that their taxes should subsidize those who took on too much risk.

Despite the inevitable backlash, consumer advocates and some in the real estate industry argue that it’s still in everyone’s best interest to avoid as many foreclosures as possible because they drag down the value of neighboring properties.

“It’s not a matter of fairness,” said Mark Goldman, a mortgage broker who lectures on real estate at San Diego State University. “It’s a matter of protecting the value of your property.”

White House press secretary Robert Gibbs declined to comment on the administration’s plans on Tuesday, other than to say that the housing crisis is “a problem that not only affects the individual homeowner and their family, but oftentimes has a direct impact to home values in the neighborhood.”

A Democrat familiar with the plan said Tuesday night that it will “enable millions of Americans to refinance or modify their mortgages to get their monthly payments down, giving them much needed relief in this time of economic distress and preventing millions of avoidable foreclosures.”

The scope of the problem is especially evident in Arizona. Nearly 117,000 properties in the state received a foreclosure filing last year, up 200 percent from a year earlier, according to RealtyTrac Inc., a foreclosure listing firm. Arizona had the third-highest foreclosure rate in the nation last year — behind Nevada and Florida.

Sorting out who will qualify will be a challenge. But any foreclosure relief plan is not expected to help those who bought homes as investments. And that’s a big number.

In Arizona, nearly 15 percent of home loans made in 2006 were made to borrowers who did not occupy their homes, compared with more than 20 percent in Florida and nearly 18 percent in Nevada, according to the Mortgage Bankers Association.

Meanwhile, the source of new foreclosures is rapidly shifting from loans resetting at dramatically higher interest rates to broader economic pain.

“It’s very difficult to come up with any kind of loan modification plan for someone without a job,” said Jay Brinkmann, chief economist with the Mortgage Bankers Association.

With companies laying off workers by the thousands and housing prices having already declined by half in some places, the housing correction is already well under way, many analysts say, and any action by the government is likely to have modest results.

“There is no silver bullet to fix any of it,” said Paul Miller, a banking analyst with Friedman, Billings, Ramsey & Co., who recently returned from a tour of foreclosure-stricken South Florida. “It’s going to take time, that’s it.”

More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007, according to RealtyTrac. The rate is only expected to increase this year.

Credit Suisse said late last year that there could be as many as 10 million foreclosures over the next four years, depending on how far the economy falls. And of the nearly 52 million U.S. homeowners with a mortgages, about 13.8 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody’s Economy.com.

Linda Real, who has owned the same well-kept house in Mesa for 35 years, noticed this past summer that foreclosures were rising around the neighborhood. Two years ago, when the market was still up, she had considered selling.

“We could have sold it for double for what we could sell it for now,” said Real, who hopes that Obama’s plan will turn around her neighborhood and bring up property values. “I don’t think there is a perfect plan, but it has got to start somewhere.”

Associated Press Writer Alan Zibel reported from Washington. Associated Press Writer Mark Smith contributed from Phoenix.

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