Upside Down and Out of Luck

19.8 percent of ALL U.S. homes with mortgages that are now underwater, according to the research firm FirstAmerican CoreLogic. And if you include those homes that are near negative equity, you get a whopping 25 percent of mortgaged U.S. homes. One in four!

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Yet once again, the Obama plan does not attack this problem head on. The Fannie-Freddie refinance part of the program only allows people to refinance if they are in the 80 percent to 105 percent loan-to-value “bucket.” Given the magnitude of the price declines I spelled out earlier, that’s going to exclude a sizable chunk of homeowners.

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One study in California found that less than 1 percent of the 88,830 loan modifications implemented in the first three quarters of 2008 included principal reductions. That compared to 47 percent where interest rates were cut. Throw in the fact the latest Obama program emphasizes steps other than principal reductions and I seriously doubt lenders will make widespread cuts.