Obama plan won't help all

WASHINGTON — The Obama administration's housing plan is intended to help 9 million struggling homeowners avoid foreclosure, but it leaves out tens of thousands of borrowers in the most battered housing markets who won't qualify because their homes have lost too much value.

The program detailed Wednesday offers refinanced mortgages or modified loans with lower monthly payments. Yet its refinancing plan is limited to borrowers who owe up to 5 percent more than their home's current value. Loan modifications, supported by $75 billion in federal funding, are unlikely for severely "underwater" borrowers.

In the California cities of Stockton, Modesto and Merced, more than one out of every 10 homeowners with a mortgage won't qualify for any help because they owe more than 50 percent more than their house's current value, according to data from real-estate Web site Zillow.com.

For a homeowner who borrowed $380,000 and now has a house worth $270,000, "I just don't know what you do with that," said Jared Martin, a mortgage broker in Bethesda, Md.

Government officials acknowledge that the initiatives are only a partial fix for a sweeping problem that has helped plunge the U.S. economy into the worst recession in decades.

"This is not going to save every person's home," said Robert Gibbs, the White House press secretary. "The plan is not intended to ... augment somebody's loan for a house that they couldn't afford under any economic situation, good or bad."

Of the nearly 52 million U.S. homeowners with a mortgage, almost 14 million, or nearly 27 percent, owe more on their mortgage than their house is now worth, according to Moody's Economy.com. In troubled Stockton, nearly one in five borrowers owe more than 50 percent above what their home is now worth, making it unlikely that they will qualify for any aid.

Though banks such as JPMorgan Chase and Wells Fargo & Co. issued statements praising the plan, there also was skepticism that banks would be willing to participate.

"I've just seen so many of the programs not work," said Pava Leyrer, president of Heritage National Mortgage in Grandville, Mich. "It gets borrowers' hopes up. They call and call for these programs and we can't get anybody to do them."

The program has two parts: one to work with lenders to modify the loan terms for up to 4 million homeowners, the second to refinance up to 5 million homeowners into more affordable fixed-rate loans.

If the plan works as intended, it could be a big plus for borrowers such as Nick Kavalary, a network cable installer who lives outside Milwaukee.

Kavalary, 42, struggled to get a loan modification from JPMorgan Chase. He was finally approved for one this year, but it only cuts his interest rate to about 9.8 percent from 10.75 percent. Even at the lower rate, he said, making the payment is nearly impossible.

"If I can't pick up a second job, I'm going to lose this house," he said. "With the job market being the way it is, nobody's hiring nobody."

This story was originally published March 4, 2009 at 11:12 PM with the headline "Obama plan won't help all."