What’s Behind Obama’s Housing Relief Plan?

Despite the attempt to stem further losses and remediate fraudulent foreclosures, this new plan for veterans and service members does not address the deep, underlying issues that have erased more than a trillion in housing equity.

According to Zillow Chief Economist Dr. Stan Humphries, the White House’s latest plan will not have make any significant strides to remedy the overall health of the housing market.

The policies announced today are largely a political move during an election year, and won’t do much to move the needle on a still-struggling housing market, although it will help a select group of deserving individuals in the military.

Looking at the big picture, though, the reduction of FHA fees runs counter to the strategy laid out in the Administration’s housing policy blueprint last year, which called for gradually decreasing the Federal role in housing by increasing FHA fees and down payment requirements. It’s not the first time that long-term objectives have been compromised in the midst of an election year.

Fundamentally, the FHA fee changes won’t be targeted to just those homeowners most at risk of default: those who are underwater on their mortgages. From this perspective, the refinancing plan Obama announced in the State of the Union address – allowing underwater homeowners with mortgages not backed by Fannie, Freddie or the FHA to refinance through the FHA – would better target those most likely to default but would do so at the cost of moving homeowners with the highest credit risk from the private sector balance sheet to the public balance sheet. The trouble is that this policy may help many underwater homeowners but do so in a way that lets private institutions off the hook again for losses.

Read more on Zillow.com:

Where Candidates Stand on Housing Issues
State of the Union and Obama’s Plan for Housing
Obama Expands Refinancing Plan to Help More Homeowners