Will the Obama housing plan work?

According to a story at BigBuilderOnline.com, some industry analysts contacted for a story on the Obama plan to address the failing housing market remain unimpressed, although there are some kernels of promise. From the story:

After slashing the much sought after $15,000 tax credit for all primary residence home buyers to $8,000 for first-time home buyers only, the government has now released a plan that analysts say will do little to bolster the ailing housing market.

The two-phase plan seeks to refinance mortgages for 4 million to 5 million "responsible" homeowners and reduce payments for another 5 million "at-risk" homeowners through loan modifications. And while analysts say the plan won't completely fail, the likelihood of it standing up to its much-touted potential is questionable...

Said David Goldberg, analyst at UBS Investment Research: "Although non-distressed homeowners with LTVs in the specified range [80-105%] will benefit, we believe foreclosures among this group would have been minimal regardless."

Some even ask whether moving forward with this phase of the plan could potentially draw more negative market action.

"While we think the government is doing this in order to avoid helping those borrowers who engaged in the riskiest behavior during the boom years, this policy runs the risk of simply postponing foreclosures and dragging out the downturn," wrote Citigroup analyst Josh Levin...

UBS's Goldberg questioned the execution of the program, saying that while this loan modification plan has some degree of built-in incentives--more money goes to the lender if the borrower stays current and the loan is modified prior to delinquency--the complexity of the incentive structure will make it difficult to navigate.

Moving forward, housing market analysts are also concerned about the upcoming spring selling season, with Rehaut forecasting continued weak results due to the lack of consumer confidence, abolishment of seller-funded down payment assistance programs, and the failed $15,000 tax credit proposal. He does, however, point to the record length and magnitude of the current downturn as a relative positive, as it signals that the market should be close to an eventual trough...

"The one aspect that remains unclear is the possibility of bank-cram down legislation making its way into law potentially including protection from investors for servicers that pursue principal reductions," (Ivy) Zelman wrote. "In the event that such legislation was passed and principal reduction becomes more prominent, we believe the tsunami of future foreclosures could be substantially mitigated."...