Feds may guarantee 3 million loan mods
White House: Plan is one of several being studied
By Inman News, Thursday, October 30, 2008.The Bush administration is said to be considering a $500 billion government loan guarantee program that could provide lenders with the incentive to modify up to 3 million troubled mortgages, at a potential taxpayer cost of $50 billion.
The Treasury Department and the Federal Deposit Insurance Corp. are reportedly negotiating the scope of such a plan, which could be carried out under the $700 billion troubled asset repurchase program (TARP).
FDIC Chairwoman Sheila Bair dropped hints about such a program at a congressional hearing last week, saying the government could provide lenders with an incentive to modify the loans of troubled borrowers by agreeing to guarantee future payments
Bair said the Emergency Economic Stabilization Act, which created the $700 billion TARP program on Oct. 3, gives the Treasury the authority to use loan guarantees and credit enhancements to facilitate loan modifications in order to prevent foreclosures.
The government could establish standards for loan modifications and provide guarantees for loans meeting those standards, she said, and revealed that the FDIC was working "closely and creatively" with Treasury on such a program (see Inman News story).
The Washington Post reported today on details of the program. The Post quoted an FDIC spokesman as saying there have been "productive conversations" with Treasury about the use of credit enhancements and loan guarantees, but the final framework and parameters of the program had not been determined.
White House spokeswoman Dana Perino said today that the administration is analyzing several housing proposals with issues of fairness and protecting taxpayers in mind, and that no announcement is imminent.
"I've seen this happen in Washington before where people float out ideas in the media," Perino said. "What I can tell you is that we're in the middle of analyzing several different proposals. If we find one that we think strikes the right notes and could meet all of those standards that we want to protect taxpayers, make sure that it's also fair and that it would actually have an impact, then we would move forward and we would announce it. But we're not ready to do that."
The Bush administration has concentrated much of its foreclosure prevention efforts on two Federal Housing Administration loan guarantee programs -- FHASecure and Hope for Homeowners -- created specifically to mitigate the impacts of rising loan delinquencies and defaults.
Critics have said the programs do not go far enough in helping troubled borrowers because many can't qualify for a loan refinancing, or because lenders will not take the write-downs required by the Hope for Homeowners program.
The new guarantee program would require lenders to restructure mortgages based on a borrower's ability to repay, Bloomberg news reported. One option envisioned is for lenders to allow lower monthly payments for five years before raising interest rates, Bloomberg reported, citing anonymous sources.
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Submitted by Gina Maloney on October 30, 2008 - 4:00pm.
Gina Maloney
Maloney Real Estate Services, Inc
Portland, OR
This concept is a good start, however, it is vital that the guidelines/conditions from the Feds be carefully thought out before implemented. I believe the taxpayer can obtain a double bang for the buck if there is a 90-day moratorium (as Obama has suggested) on foreclosures. The moratorium should be for any pre-foreclosure or related situation as well, before additional money is earmarked and sent to the banks for loan modifications.
The conditions on this money need to fulfill the intent that each party involved will lose a bit and benefit a bit; and in the end serve the greater good. Major mind-sets of banks must not be applied to this segment of “bail out” funding. Additionally, we must remove the borrower’s incentive to walk away from this debt.
For example: When a bank considers a loan modification they have rules/conditions with which the applicant must comply.
1. Must be able to repay the loan under current circumstances; 2. must have a job; 3. Must have good/excellent credit; 3. Bank will not reduce principal; and 4. Generally, bank will not consider a modification if someone is in good standing with their payments.
Many banks are now initiating contact with customers who are at risk for defaulting. The problem is that most people don't qualify to modify their loans because the home's value is less than the loan balance or the person lost their job, or on and on...
And, what about those loans that are out in cyberspace - that no one even knows their value? How will we deal with those?
I could write an epistle on this subject.
Please, Feds, don't throw our money at the problem until you have a handle on how you can make it work best for the most.
Submitted by Jodi Summers on October 31, 2008 - 3:47pm.
This morning I heard it said on the Today Show that nearly 20% of American owe more than their home is worth.
That is a very frightening concept, even on Halloween.
Best….
Jodi Summers
The SoCal Investment Real Estate Group
Sotheby’s International Realty
310. 392.1211
fax: 310. 392.1001
jodi@jodisummers.com
www.SantaMonicaPropertyBlog.com
www.SoCalMultiUnitRealEstateBlog.com
www.107and117WChannelRd.jodisummers.com
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Joy is what happens when we allow ourselves to recognize how good things really are.
- Marianne Williamson
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on November 1, 2008 - 6:41pm.
The answers are definitely not easy to put into context, conceptualize or put in action.
Gina's plan seems to eliminate most borrower's in today's market or in their current condition. After all, if you are in default, your credit will unlikely be good or excellent and in today's job market, may even be the very reason they're in the situation they're in.
A moratorium in my opinion is only a patch. It is like allowing someone to file bankruptcy who will not be able to afford the repayment plan (Chp 13). Once a payment is missed, they're off the plan and back on the auction block.
For someone who's home value has dropped below the original value and who owes more that it is now worth and who is in a financial situation that no longer allows them to continue making payments, a moratorium only prolongs the innevitable.
Fannie and Freddie should have never relaxed their standards so much. Having been allowed to do it, government oversight committees should have evaluated the results of such relaxed ruling periodically. Not having done that either, Fannie and Freddie continued to allow new lousy programs to be sold to the public, and continued to buy these bad mortgages.
To pass the buck, they continued to package and sell them to investors, rather than to take responsibility and either self-regulate in an effort to exercise self-preservation (as Greenspan later found out was one of his biggest assumption mistakes while implementing his policies).
Investors later also passed the buck and created such diluted and almost untraceable products that were later even covered (insured) by CDS products that the SEC should have not allowed to lobby in favor of it.
As we can see, there is plenty of blame to go around. From those in government who, in the interest of improving homeownership in America helped create this unregulated monsters, to those who chose to ignore the implications of over extending themselves while buying homes they knew they could not afford (though most of them probably thought they could eventually sell them as so many of their neighbors before them did in order to create a quick buck - the same prescription Fannie, Freddie and most investors were following).
Now, and since we have been helping the financial culprits and we are still not going after the political culprits, we must similarly help the small-time culprits. This is a way to spread fault (it runs similar to Obama's spread the wealth philosophy).
All for one & one for all.
Otherwise, we should pursue those who bought homes they could not afford, the lenders who created, packaged and sold the mortgages, the government officials and cohorts who failed to protect the American people, even while presiding over the very committee that should have questioned and put a stop to these practices.
The head of the same committee who now says that taxes will have to be increased in 2009 (Barney Frank) and who is a member of the same majority that along with Reid and Polosi, will likely (mis)guide the will of our next president (Obama or McCain - though they'll have a better chance of influencing one than the other).
Therefore, to be fair, if corporate authorities are allowed to shift gears and carry on and, if politicians like Frank who presided on a committe that was in charge of the two entities that started the snowball (Fannie and Freddie), is also allowed to continue to "serve" the American public, then the Americans who also took advantage of the opportunities placed like lollypops and carrots in front of them to take the bait for the loan programs being aggressively promoted should also be allowed to "learn from their mistake" and be allowed to carry on under a new mortgage.
I favor the idea to buy back the existing mortgages and to create new instruments that the homeowners (within certain guidelines and reason) could afford so they too, could keep their home. Otherwise, aggressive and fair modifications that would include most everyone who intends to pay the lower payment is also better in my opinion than a moratorium to then inevitably, contine to spread the damage anyway.
Like politicians who keep their job and CEOs who keep running the same companies they almost ran to the ground - homeowners too should be allowed to make affordable payments and keep their home.
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.