From the WaPo:
Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.
Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.
To attract financial institutions to the program, the government would then guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.
The mortgage guarantee program would vastly expand the role of the Treasury Department in helping homeowners, while at the same time ensuring some return for lenders.
It would cost between $40 billion and $50 billion, sources said.
The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.
While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing..
Wait, what? I thought the FHA Secure program was such a grand success, according to HUD. Yet reports show that the true number of homeowners helped under that program was unfortunately low which I predicted in Aug of 2007. The July bailout bill gave us Hope for Homeowners, which requires voluntary principal balance reductions on the existing loans and gave the homeowner a new FHA-insured loan. Housing Wire reports that so far, H4H has few takers. But not for lack of interested homeowners. Instead, it’s the investors:
The problem, however, may not be lenders, who say they’re more than willing to begin processing the loans. Instead, the problem sits with third-party investors that have thus far proven unwilling to take the minimum 10 percent haircut required to put borrowers into the program, plus an upfront premium payment–losses are actually far greater for investors who participate, given that the 10 percent figure is based on a current appraisal, and not original LTV.
John Sorgenfrei, president of Florida-based Assurance Home Loan, Inc., said he receives calls from eight to 10 borrowers daily about participation in the program. For the time being, he has been forced to make them wait, as no investors so far have bought into the program..
We’re burning through the 700 billion Troubled Asset Relief Program (TARP) money pretty fast. The 40 to 50 billion tossed out for this new plan seems sadly low. Who is feeding the politicians the dollar amounts? This is not nearly enough money. It may keep the banks alive for a few more months but to what end?
Do you think this latest proposal seems more like another bank bailout? It’s hard to say until we see the guidelines. With FHA and H4H, income must be fully documented and homeowners must qualify. Once again, this may shave off a fair number of homeowners who won’t be able to document income needed to qualify.
It might be wiser to just start talking about nationalizing the entire banking system at this point. I mean, how many bailouts will it take before taxpayers own the banks?
This sucks.
Can’t we change the way these institutions are regulated? The current system has certainly failed fantastically. Shouldn’t we think about changing the system? Nationalization is pretty scary though.
I don’t know. Maybe Eleua was right.
One foreclosure prevention strategy already in place is the reverse mortgage product aimed at helping seniors. It has been in place almost 20 years and readily available to qualifiing seniors – not subject to income or credit worthiness criteria.
Homeowners aren’t helped. And the original purpose is subverted.
I’m not really persuaded that it’s okay for banks and other powerhouses getting federal funds to spend millions on inappropriate activities because it’s separate from the bailout. Tax money is freeing up their limited funds, so it still comes back on us.
AIG really gets me mad and I’m not alone.
I read that article about the failure to make modifications, and threw it in Rhonda post. One important element is that the process was only put in place Oct 1st.
It may be too early to judge it’s effectiveness, but I am not hopeful.
It is abundantly clear that the federal government is trying to manage the economy, the banking system, and the home mortgage crisis.
I think it is vital that the government force banks to report data on this crisis, then report that data to the public on a timely basis.
“If you cannot measure it, you cannot manage it”.
That should have been the first order of the day for loan modifications.
Wow, time for me to stop paying my mortgage so I can tap into the bailout. Absolutely disgusting. When did the USA turn into a socialist country? What happened to personal accountability?
It’s not asi f the USA can afford this excess, we will have to borrow this from CHina, Japan and GErmany and add it to the $35,000 bill that every american already has to pay off our deficit. Way to go stiffing our kids with paying for our out of control lifestyles.
Perhaps the Feds plan is to borrow as much as we can and then default stiffing the USA’s lenders. It is time the federal govenrment ask France or China for advice on runiing a capitalistic economy.
I fault the “improvements” to the plan that allowed it to be passed. The increased flexibility allows the money to be used for this or that (e.g. investing directly in banks and now this) rather than what it was intended for originally.
I’d really like to see what ability to pay means.
You know, this is BS. Why should I bend over for Treasury and/or FDIC just because I bought a house I could (barely) afford, am making the damned payments, and can and will continue to? Should I have bought another $300k worth of property, taken the 3 yr ARM that would have resulted in the SAME mortgage payment I’m making now, and just stopped paying when it rest? Why the hell should I NOT get bailed out when I’m being responsible? We’re rewarding bad behavior, everyone, because I’m here to tell you that, with VERY few exceptions, each and every homeowner that bought more than they should have knew just what they were doing, and were counting on selling after two years to get the sizable appreciation and the capital gains break.
I mean “reset”.
This is not even socialist, it is closer to being communist. Capitalism does not work if people who make poor decisions don’t lose their money.
If you cannot afford the payments after a loan modification then you cannot afford your house. And if you cannot afford your house it needs to be sold to somebody who can. If the bank cannot find anybody then they need to lower the price until somebody can afford it, or rent it out. This is not rocket science, it is basic business.
The best form of legislation that the government could provide is sheltering credit ratings for people who get foreclosed in the next couple of years, maybe with the government essentially paying PMI for you if you have bad credit from a foreclosure. This will stop the government from interferring with the free market of houses and minimize the impact to citizens. If the banks have good lending guidelines and they are responsible for making good loans, everything will eventually go back to a healthy market.
Considering the lack of financial sophistication of the average American, even politicians who agree with me won’t tell the truth that house prices are too high for a healthy economy. So we will continue to throw money away on useless programs.
BTW – how well did the last bailout work? How much of the $700b made its way to being lent to people? People should see this as a sign that house prices are too high (because with 20% down and 38% of income, nobody can afford housing anymore).
It seems readily apparent that they need to keep going back to the drawing board. The road to hell is paved with good intentions, and I don’t doubt that these efforts demonstrate governmental benevolence, but Congress needs to take greater advantage of the expertise of people who have managed to carve out successful careers in real estate and lending. The remedies being crafted by bureaucrats seem to be woefully ineffectual.