The White House is proposing to expand the role of the federal government to stem a wave of mortgage defaults, President Bush said last week, unveiling a series of steps including allowing refinancing into government-insured mortgages. Under the plan, the Federal Housing Administration's mortgage insurance program will be changed to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. People who have missed mortgage payments are now ineligible for FHA insurance.
The President's plan would allow them to be eligible for FHA insurance if the amount they are required to pay each month increases, as has happened on many adjustable loans with so-called "teaser" introductory rates. However, Bush is rejecting a wholesale bailout of borrowers and lenders alike, saying it's not Washington's role to provide such a backstop.
"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford," Bush said. But he said many homeowners could be helped if their lenders are flexible with mortgage terms and the government offers them modest help.
The president wants to work with Congress to temporarily suspend the tax liability that can take effect when borrowers lose their homes through short-sales, and when lenders forgive mortgage debt. That will enable borrowers to more easily re-work their loans.
Bush also discussed putting together a coalition of community groups, government agencies and government-sponsored enterprises, such as Freddie Mac, to help homeowners refinance onerous loans. That would include making credit available as well as counseling borrowers on credit issues.
Another of the president's goals is to increase transparency in lending practices so consumers would better understand the true risks and costs of loans for which they sign up. That could reduce the number of borrowers facing the loss of their homes in the future.
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4 comments:
Let me get this straight. After years of Alan Greenspun pouring gasoline onto the mortgage industry fire (easy credit / low interest rates) in cohoots with the Paulson cronies over at Treasury, the U.S. taxpayer is now going to be hit to bail out those lenders and borrowers who made stupid lending and borrowing decisions. All this in a thinly veiled and heavy handed "get on the bus or else" program to appease the masses in the lead up to the November 2008 elections. Oh Please. LET THE CAPITAL MARKETS WORK! LET THE FOLKS WHO MADE THE STUPID DECISIONS WEAR THE CONSEQUENCES. Let's face it - not everyone can afford to own a home. DEAL WITH IT. The USA holds it self out as the home of capitalism but time and time again it resorts to socialist and protectionist policies designed to distort the efficient operation of the capital markets. Capital flows THROUGH the economy not into or out of it. Wealth is simply redistributed in the short term. The real reason we are even talking about this is that folks up for election are scared stiff that wealth reallocation is going to happen in the lead-up to the election. Oh dear! Let's roll out the pork (again) and save the imprudent at taxpayers expense. Let them fail I say!
I'm glad that someone out there is getting it! With Paulson (and Bush) folding big time so that those who want to continue the party can do so at government expense, and this election figuring so prominently in policy makers' decisions, it is up to you and me and the other rational capitalists to beat the drum and say LET THE CAPITAL MARKETS WORK!
Read the rest of my blog... you and I are on the same page.
Besides, this is old news. There is even more outrageous stuff being proposed now, and mainly with an eye to kicking the problem down the road.
The sooner the market works through this, the sooner prices recover. String it out and foreclosures will rule the market for the next ten years.
Here are some other comments left at CNBC's Diana Olick's Blog on Housing...
Gina:
I hate to see people lose their homes - but if they get an interest rate break THEN THE REST OF US SHOULD ALSO.
Rich:
The Paulson Plan is a win win for all parties. It benefits the homeowners, the lenders, the credit market, the economy and society at large. We need to deal with what is; not what should have been. The alternative, ignoring the sub-prime mess and letting the free market correct the problem over time, is to have a downward spiral that will negatively effect all the parties for the next two years.
Terri M.:
I'm so angry I can't even begin to tell you. This, in my humble opinion, is nothing more than trying to save Wall St. The proposal is going to be impossible, from a servicing perspective, to enact. This is still going to require re-underwriting. Reverifying income, reappraising because of lower values - just shaking my head (but my eye is starting to twitch from tension)
Mark:
Is it too late to sign up for an unsustainable loan? Count me in! I'd like a piece of the Speculator Relief Bill the government is brewing up (and handing out).
Karl:
No! The irresponsible over-spenders should not be given a mandated mortgage bailout. This mess is just the wake-up call to get Americans to stop drowning in debt. They must stop borrowing extensively every time they want something, but don't want to wait and/or save for it. Let them all get second jobs or be renters!
Anonymous:
Why should we bail out speculators. If you took an ARM mortgage out that makes you a speculator. You gambled on where you thought interest rates were going. What makes me laugh is the amount of people that lost. Rates were at historic lows...WHERE DID YOU THINK THEY WOULD GO FROM THERE!!!!!!!!! Up Up and way. This country is turning into a JOKE.
ASR:
The people who keep crying “bailout” and free markets probably don’t have a house next door being foreclosed resulting in an instant 20% drop in the value of their own home and other neighborhood homes - let alone the aesthetics of the neighborhood. And they probably also have a job. So they’re feeling pretty smug right now. After all, a “bailout” is all about other people’s or institution’s situations – these “bailout” people are simply above it all. However, I suspect, when the first foreclosure happens in their neighborhood or they get laid off from their job due to the spreading weakness in the economy from the fallout of this mess, you won’t be hearing them cry about bailouts and free markets – instead they’ll be the ones looking for a “bailout”.
Stephen M.:
While the rate freeze plan sounds like a right thing to do to bolster the historically low approval rating of this administration, I question who ultimately will be paying for this? The banks? Homeowners who don’t qualify? Tax payers? Investors and institutions near and far who bought these mortgages, CDOs, CLOs and CDO-squared? Our economy? I cannot imagine that a win-win solution to a mess as huge as the subprime slime would really exist with nobody getting hurt. Who is going to be left standing when the music stops?
Peter:
ENOUGH IS ENOUGH, stop playing politics and let the market correct.
Conlif J.:
Here we go once again with the government trying to bail out big business, it is not about trying to keep individuals in their home but to stop the financials from burning to the ground. They, the financial companies knew exactly what they were getting into. They were making so much money repackaging these loans to investors everyone had to get on the band wagon, they fell asleep while celebrating with their Cuban cigar and the wagon caught fire. They gambled and lost. Yes, gambled. Let it burn itself out.
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