Homeowner Stability Initiative

To Obama administration,

I am writing to question some aspects of the Homeowner Stability Initiative that the President unveiled this week. I do not know why jumbo mortgages above $417,000 are disqualified from assistance, since that loan amount is about average for attractive metro areas like the San Francisco Bay. Today on the real estate website redfin.com, a modest 1,100 sq. ft. home in San Mateo built in 1941 (just a couple blocks from a horse track and adult bookstores) still has a $799,000 asking price. I know that the government should not rescue speculators or people who "bought too much home", but in inflated real estate zones like mine, a jumbo loan does not constitute a jumbo home. Moderate homes cost $400-700 per square foot, which almost necessitates a jumbo loan, especially for younger buyers who haven't had time to accumulate much savings (car and student loan payments). Foreclosures exist in "wealthier" neighborhoods too, even though many residents are not rich. But this part of your plan boils down to geographical discrimination. Could you please reconsider this restriction?

Out of fairness and common sense, I would also request that you expand assistance to would-be homeowners as well. The government does not want to see more vacant, bank-owned homes further depressing the already troubled market. But in terms of the housing market, it does not matter if homes are occupied by the original residents, barely making payments even with federal assistance, or new buyers taking their place. Prospective buyers want and deserve a home just as much as those who were irresponsible or naive during the boom. But they should be given the benefit of the doubt because they didn't directly contribute to the problem. Under the temptation of easy credit and social pressures to convey financial status through home ownership, they showed restraint and prudence, and lived within their means. Now that prices have corrected somewhat, many Americans are better positioned to afford their first home, which can help stabilize the market. But they are also unsure about the future and may hesitate to act. Don't they also deserve government intervention to negotiate a fair mortgage that limits their interest rate, so that monthly payments do not exceed 31-38% gross salary? It would be a confidence boost instead of a lifeline.

In addition, I have to question the overall moral hazard posed by supporting duped borrowers and manipulative lenders. Then what is the incentive for lenders to make concessions to help restructure impossible mortgages, or borrowers on the cusp to tighten their belts in order to keep up with payments? As long as they appear to be sufficiently struggling, eventually Washington will intervene with taxpayer aid. I know that homes are a sensitive subject and part of the American Dream, but I hope that such sentimentality will not preclude sound judgment. We cannot save everyone, and experts are fairly sure that a good portion of the people who sign up for your mortgage relief plan will still lose their homes in the coming years. We trust you to manage our finite resources, and times are tight. Therefore, we expect you to allocate them in ways that provide the most benefit for the cost, and help the people who merit it most.

http://news.yahoo.com/s/time/20090219/us_time/08599188047300
http://www.time.com/time/politics/article/0,8599,1880259,00.html