This recipe seems to be aimed squarely at subprime borrowers of 2005-2006. (They and flippers are the ones doing most foreclosing nowadays) Average subprime loan taken out in 2005-2006 was $199,000, 92% adjustable-rate (mostly 2-year), 91% owner-occupied.
First of all – can you get enough subprime borrowers into this program? Only 50% of subprime originations were full-doc in the last few years. Even those were often qualified at teaser rates.
Second of all – even if government manages to roll out this plan in time, it will not save the housing bubble. Here in South California, for example, subprime isn’t really a big problem. LA/SD houses are too expensive. That’s why we don’t see as many foreclosures as some other places. (as of ’06, 9.6% of all mortgages mortgages in SD were subprime. Compare with 18% in Vegas, 20% in Riverside and 23% in Miami) Prices are falling anyway.
