The Obama administration is -- finally -- laying out how it will help homeowners in distress.
The question now is whether it will bail out enough of them fast enough before real estate values sink again and threaten a new round of homeowners.
Wall Street cheers
The stock market gave the plan an initial favorable response, with the Dow soaring 149.82 points Wednesday, partly because of the release of the new plan.
But here's the rub: 8.3 million properties -- representing 1 in 5 homeowners with mortgages -- are already worth less than the mortgages on them, according to a new report by First American CoreLogic. If prices fall just 5 percent more, the company estimates, the ratio will rise to 1 in 4 homeowners.
That's a mind boggling number. It would represent more than 10 million properties, more than twice the number that the Obama administration's Home Affordable Modification Program aims to help.
Up to 4 million targeted
Under that plan, 3 million to 4 million Americans would receive lower mortgage interest rates and, if necessary, longer repayment periods and forgiveness of some of their principal.
Not all the 8.3 million properties currently "underwater" would qualify. The program doesn't extend to investors, only to those who occupy the home. It's open only to people who can document that they are at risk of default (not all underwater mortgage-holders are in financial stress). Some homeowners are so far in the hole that the program's initial testing process will eliminate them from consideration.
The program is also voluntary, so lenders don't have to participate if they don't like the government incentives.
A $75 billion plan
It's too early to tell whether the $75 billion program will be enough.
Bankers and analysts are calling it a good first step, in part because it covers loans up to $729,750, which helps distressed homeowners in high-cost areas like California, and includes incentives for lenders to extinguish second liens on the property, such as home equity loans.
"We're encouraged by the effort," said David Kittle, chairman of the Mortgage Bankers Association in an interview late last month, when the administration outlined the program. But "it's a tool in the toolbox. It's not the answer."
Program now open
The next step is up to those distressed homeowners. The program starts today and goes through the end of the year. They can start by calling their lender.
"Our members are eagerly waiting to hear from their customers," said Mr. Kittle. "We want to keep them in their homes."