The New Homeowner Rescue May Come After Home Price Recovery

The new $26 billion settlement between five banks on one side and a number of state attorneys general and the federal government on the other is extremely complex. One thing that homeowners can take from the details of the arrangement, though, is that some people who face foreclosure will receive government aid and some people with underwater mortgages will get financial relief through refinancing. But the banks involved have up to three years to meet the provisions of the settlement. That is so far into the future that the housing crisis may be over before many people who need help receive it.

Provisions in the deal offer banks incentives to aid homeowners in the first 12 months after the deal is signed. There were also incentives for banks to use the Home Affordable Modification Program (HAMP) and other government programs. Big banks that do business across many states from thousands of offices will have to process tens of thousands of mortgage applications. That is a formula for slow relief. “There were many small wrongs that were done here,” U.S. Housing and Urban Development Secretary Shaun Donovan said as the deal was announced. “This does not resolve everything. We will be aggressive about going after claims elsewhere.” But HUD hardly can control the pace at which the banks operate.

Home prices may not have reached bottom, but many economists think they will soon. The home value market may not recover for years, and in some regions it may never recover entirely. But housing experts expect a recovery to be well underway by 2014. The millions of homes with underwater mortgages may remain underwater, but as the activity of buyers increases and foreclosures drop, the ability to sell a house for more than the mortgage on it will increase. Mortgage rates that are at all-time lows should help the sales process across the nation.

Many homeowners still will need help two or three years from now. The ones in the most financial distress cannot wait that long. And many of those with the burden of homes with underwater mortgages will have some relief two or three years from today as home prices slowly rise. In both cases, the money from the government settlement will be too late.

Douglas A. McIntyre