"The administration runs the risk of continuously promising massive fixes that do not solve anything," says Calabria.
Gus Altuzarra, CEO of Vertical Capital Markets, which buys whole mortgage loans agrees. "They are trying to win voters over by putting more things out there. But they don't address the problem. You need to make credit available so that inventory is absorbed, prices go up and then someone will get closer to equity on their home," he said.
He says banks need to be encouraged to make more home loans without fearing regulatory consequences, something that may be more in the domain of the Federal Reserve than the government.
He does, however, believe that the administration is right in targeting principal reductions. "In order to fix housing there needs to be an adjustment to the principal balance. If a house is upside down, they have no motivation to pay. The interest rate may go down to 4% from 6% with the help of a refinancing program, but borrowers are still stuck," says Altuzarra.The recently announced measures could have some political impact in certain crucial states such as Colorado, Nevada, North Carolina, Virginia and Florida, where there are a high number of underwater borrowers, says Strategic Vision's Johnson. "Those are the states I will be watching for the effectiveness of the programs . If we see unemployment dropping but foreclosures going up, that will be a problem. We need to see both measures go down in those states," he said. --Written by Shanthi Bharatwaj in New York
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