The fire bloggers are already on "Obama's Plan" like flies on Schweddy Balls ice cream. There's so much chatter and misinformation about this plan that I hesitate to write this post and add to the problem. But certain facts seem to be clear and I'm advising an underwater guy in Vermont, so here's a quick take.

HARP is an Obama Administration plan, adopted and implemented by FHFA in 2009. It has produced about 900,000 re-finances, far less than projected. The Administration's potential influence over the FHFA is by appointment of the Director, with approval by Congress. Through a series of half steps, Ed DeMarco, appointed originally by Bush has risen to the top and appears irreplaceable. DeMarco would rival Peterson and Norquist as having the most power in Washington outside any given elected official.

The FHFA website gives the specifics of the revised rules regarding HARP. By the way, you can look up your loan there to determine if it is in fact guaranteed by one of the GSEs and if it was purchased prior to 2009 - two of the entrance requirements in qualifying for HARP - and a source of the smell sensed by fire bloggers. The program excludes a lot or worthy would-be refinancers. One of the headlines of this refi makeover is that there is now no limit on "how far underwater" one can be to still participate. Previously, the Loan-To-Value (LTV) had already been raised to 125% - but there were only 72,000 refinanced loans with  LTVs over 105%.  (A property appraised at $100K with a $105K loan has an LTV of 105%)

To say, as I heard on "Ed" last night, that this new refi effort is by "executive order" is a stretch. DeMarco is independent. DeMarco seems not to take direction well from either Geithner or Congress. Whether this refi revision can even be called an "Obama Plan" is debatable. It might be called the '"we got our act together and helped DeMarco see the wisdom of easing restrictions to refinancing" plan'.  

In any case, the principled DeMarco has finally linked a numbers-based FHFA mandate to protect the GSE's from further bad behavior and losses to an old notion like the "common good". He pronounced that refinances would actually lower Agency (and we the taxpayers') risk because it improves the underwater borrowers' personal balance sheets. And it also helps stabilize the housing market, which helps the taxpayer. Well, Mr. DeMarco, there are no flies on that logic! But by the time you got around to it, the Schweddy Balls melted.

What the fire bloggers are honing in on is that the plan does not provide for reductions in principal and that the borrower would still be underwater. Moreover, in order to get the reduced fees, appraisal relief and so on, the borrower has to shorten the term on the loan - to 15 or 20 years. The "math" on shortening term, aside from the actual interest rate, is that payments go up - with the corollary that the principal goes down faster. The shorter loan builds equity faster, improving the Vermont guy's personal balance sheet. But if he's looking for lower overall payments to stimulate himself and the economy in the interim he has to keep his 30 year mortgage term - and, and, Schweddy Balls all around plus a pint of Cherry Garcia - he doesn't get reductions in up front fees. So, Vermont guy might do this refi because it makes sense in the long run.. But the folks who are hurting a lot more right now would have to take on the extra charges in order to lower their actual payments. And add the fees to the principal. Back to square one.

The issue of up front fees plus a host of other impediments is a large part of why HARP hasn't worked very well so far. But the main problem is that banks haven't cooperated. The reluctance has been not wanting to disclose how underwater they themselves are, plus the matters of lawsuits and liabilities. 

The only "Ah-ha" that I can see in this Not Really an Obama Administration Plan but a Cave In by DeMarco Refinance Program has to do with the so called "reps" and "warrants" inherent in the original loans. Previously, banks were loathe to refinance if the refinanced loan contained a carryover of liability related to the first loan's origination. Now the FHFA for a small fee is going to waive prior liabilities for reps and warrants to refi lenders. That step removes a big obstacle for refinancing entities to participate. And it also rightly irks people who conclude that banks are being let off the hook again.

So why does this plan stink so good? Those who place legal action at all cost against the perps of the mortgage crisis ahead of a refinance program have a point. But the "reps" and "warrant" liabilities given up by FHFA are helping break the refinance log jam. I think more people being able to refinance is a greater good. And the specific liabilities given up in this case are not the whole pint of ice cream. These bank liabilities relate to actions taken in origination - not to a host of other evils which are still subject to redress.

And the fact that many underwater borrowers, people who really need principal reduction, people who are still threatened with losing their homes - the fact that this program is not a direct help is a condemnation of our broad economics and politics. The FHFA does operate with a mandate set by Congress. It has chosen a narrow path forward in the context of very fractured politics and Mr. DeMarco's newly found reduced principles. The HARP revision and expansion is not enough. It doesn't excuse the Obama Administration for a host of mistakes and oversights.

But on balance the revised HARP program is going to do some good. And when Vermont guy and other more fortunate underwater borrowers and lenders take a harder look at the program, the positive effects just might be more widespread and helpful to everyone else than is currently being estimated. Obama and the FHFA are using a projection of one million borrowers by the end of 2013. A Fed official has estimated at least four million prospects. I await the fire bloggers bringing to our attention conspiracy theories about why this program is being undersold.