The Obama administration's plan to stave off foreclosures could fall flat in California, where nearly one-third of mortgage holders are underwater on their loans -- many of them by amounts that would disqualify them for government-sponsored refinancing.
The problem is likely to be especially acute in areas like the Inland Empire, where homes have lost more than 40% of their value in the last year and nearly half the homeowners owe more on their loans than the properties are worth.
"They're underwater by six figures in many cases," said Greg McBride, a senior analyst with Bankrate.com. "Many homeowners in Southern California are left to twist in the wind."
Under the Obama plan, people who are current on their mortgages could obtain new loans with lower rates for as much as 105% of the value of their homes. That means people could borrow $315,000 against a home worth $300,000.
The problem is that in California, many people owe far more than 105% on their homes, McBride said.
The second part of the administration's plan would pay cash and fees to mortgage companies to encourage them to modify homeowners' loans so their payments are no more than 31% of their incomes.
But to get a modification, you have to be able to make payments -- which usually means having a job. That could also be a problem in California, where the state unemployment rate was 10.1% in January, compared with 7.6% nationwide.
Melanie Eslava of Glendale is an example of someone who would be left out of both parts of the Obama program.
Eslava, 28, bought her two-bedroom, 1,100-square-foot condominium two years ago for $385,000. She put no money down, so when the condo lost value, she instantly owed more than it was worth. At first it didn't matter because Eslava had a good job as a software saleswoman. Then she was laid off.
When Eslava tried to sell the home, the best offer was $285,000, far less than she owes. That kicks her out of the group of people who can refinance under the program because she is too far underwater. Because she doesn't have a job, Eslava can't qualify for the loan modifications either.
The need for the plan was reinforced by a report from the Mortgage Bankers' Assn. on Thursday that found that nearly 12% of U.S. homeowners were in arrears on their loans or in foreclosure. The numbers were even worse in battered states such as California, where 13% of homeowners were behind on their payments, and Florida, where 20% were late.
