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TechnoratiAfter the Housing Bill: Time to Address Foreclosures
Last week Congress finally passed its long-debated housing bill. In addition to securing the multimillion-dollar salaries of the top executives of Fannie Mae and Freddie Mac, and protecting their shareholders from facing the full consequences of their bad stock picks, the bill also provided funds for guaranteeing new mortgages for homeowners facing foreclosure. The bill allows lenders to bring failing mortgages to the Federal Housing Authority (FHA), which will guarantee a new mortgage at 85 percent of the current appraised value of the home. The Congressional Budget Office (CBO) estimates that lenders will bring 400,000 mortgages to the FHA over the next three years. CBO expects that 140,000 of these mortgages will go into foreclosure a second time, leaving a net of 260,000 homeowners who will hang onto their homes as a result of this program.
By contrast, there are likely to be 2.5 million to 3 million foreclosures in both 2008 and 2009. This means that the housing bill will likely help less than five percent of the families facing foreclosure over the next two years, leaving 95 percent of this group out of luck.
Fortunately, there is something very simple that Congress can do if it actually wants to help families facing foreclosure. Representative Raul Grijalva has proposed a bill, the Saving Family Homes Act, which would allow many of these homeowners to stay in their homes. It requires no taxpayer dollars and no new government bureaucracy, and it can begin to protect homeowners as soon as the bill is approved by Congress.
The bill temporarily alters the rules on foreclosures. It allows homeowners facing foreclosure the option to stay in their home as renters paying the fair market rent. They would be allowed to remain in their home for up to 20 years. The bill would only apply to homes that were purchased for less than the median price in the area. This ensures that it only benefits those most in need of help, rather than millionaires who made bad bets in the housing market.
There are two main benefits from this proposal. First, it will provide housing security to millions of homeowners who would otherwise be forced out on the street. If a family is happy with their home -- they like the neighborhood and the schools -- they would have the option to remain there as renters. This prevents the property from standing vacant, which is a benefit to both their neighbors and the local government.
The second benefit is that it is likely to lead to a situation in which many of these families will be able to stay in their home as homeowners. By giving homeowners the option to remain in their home as renters, the Grijalva bill changes the calculation for lenders seeking foreclosures. Banks will no longer have the option to use the foreclosure process to throw families on the street and then resell the vacant house.
Instead, banks will face the prospect of having a long-term tenant. In general, banks are not interested in becoming landlords, so this will not be an attractive option. Banks will of course still be able to sell the foreclosed property, but the former homeowner would still have the right to remain as a tenant. And a property with a tenant attached will command a much lower price than a vacant home.
In short, the Grijalva bill makes foreclosure a much-less-attractive option for banks. It provides them with a real incentive to try to work out a new payment schedule with homeowners that will allow them to remain in their homes as owners.
Since the change in rules on foreclosure is temporary and limited, it should have only a minimal effect on lenders' willingness to make new loans in the future. Furthermore, if it raises concerns in the future among lenders over the risks of making loans in a bubble environment, then this would be a further benefit of the bill.
The structure of the bill is designed so that the beneficiaries will be overwhelmingly moderate-income families and actual homeowners. A speculator will not benefit from the option to stay in a home as a long-term tenant paying the fair market rent.
So, if Congress is interested in helping homeowners after its heroic efforts on behalf of Fannie and Freddie's shareholders and management, it can approve the Grijalva bill. It would almost certainly do more to protect homeownership than the bill passed last week.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer." He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.
15 Comments so far
Show AllIssue about the mortgage market is the most closely linked to American workers. Sometimes they are being hit by a double-whammy as they lose not only their homes, but also their retirement savings, as pension funds bear the brunt of overwhelming losses faced by financial institutions. There are many options to choose from like applying credit cards which is also a good choice to do. But sometimes we can’t guarantee enough in choosing this if we don’t have any plan and strategies in making right decision in taking this choice. Thankfully, it is easy to obtain a payday loan when we are short on resources. Unfortunately, it appears the Federal Housing Authority is short on resources to help regulate predatory lending. I think if the FHA is unable to distinguish shady lenders from legitimate ones, we’ll be back in the ring, fighting with another blow of predatory lenders and home foreclosures. The Obama administration should definitely put some of the TARP fund that is still left toward fixing the mortgage crisis, hire more employees and have new and experienced FHA appraisers. In states like California, where home values are down,yet home prices and property taxes are still outrageous, having strong HUD enforcement is absolutely necessary to repair the housing crisis that is significantly increasing throughout the entire country. It’s going to take a lot of work and a huge payday loan to get things back in place.
"The Congressional Budget Office (CBO) estimates that lenders will bring 400,000 mortgages to the FHA over the next three years. CBO expects that 140,000 of these mortgages will go into foreclosure a second time, leaving a net of 260,000 homeowners who will hang onto their homes as a result of this program."
Has the CBO taken into account more American job losses over the next 3 years with HB1-visas and more outsourcing? If not, one can logically assume that the "second time" foreclosure estimate is unreliable.
Many of you will appreciate this video and letter to our lawmakers on Captiol Hill: http://www.financialsense.com/fsu/editorials/rebels/2008/0725.html
I am shocked at the mean spiritedness of those who think they are immune from this mess and say that people facing forclosure should just have not "played the game" of Monopoly with the big guys who were flipping houses. The problem is that when people got their mortgages they were offered a fixed rate, or an adjustable rate with a balloon payment at a lower rate. The people who understood that this was a bubble, took the fixed rate. The really smart ones did not refinance during the boom and blow the money, but instead downsized before the bubble popped. The people who hadn't a clue thought "No problem, by the time we have to pay the higher mortgage and baloon payment our house will be worth twice as much and we can just refinance - That's what everyone else is doing right?"
Now they are going to be forclosed on and forced to rent - But Guess What?!, rents have gone up corresponding to the bubble, because of all the slum lords and house flippers who invested in real estate for profit. Many Americans also did another thing in the real estate Bubble/Boom - in order to qualify for their mortgages - They lied (stated income loans) in order to qualify for what they can't afford, or just get into a house before the cost went up so high they never would own a home. The banks (and the politicians, CEO's, government contractors, stock brokers, trustfunders, etc.) were making money hand over fist by unscrupulous means, so why shouldn't everyone?.., and no one has the time to check the paperwork. The bureaucracy is now so screwed up - all the government can think of doing is make more bureaucracy (as long as the fat cats get to make a profit - as always, and the bankruptcy option for working people has been closed). This desperate bungling & stealing which is causing the collapse of the US ecomony is reminding me of what happemed to the Soviet Union before it collapsed. America's Capitalism is a huge Ponzi scheme with millions of people now realizing that they got into the game too late. Do those who say "But we were Responsible!" think this disaster won't effect them? The slums of the future will be Mc Mansions because some people were greedy. What will be left is the small class of wealthy who stole or inherited their riches during the Bush regime, and millions of homeless, landless, jobless slaves.
This must have been the plan all along.
GwNorth said- "The Conspiracy theory in me wants to say the subprime Mortgage crisis and those revamped bankruptcy laws were somehow linked. They seen it coming and wanted to make sure the Corporations got their nine pounds of flesh, and were able to squeeze blood from stones.
But nah..they would never be THAT far sighted now would they?"
To answer your question, yes. Do not confuse provisional government with those who rule us in the shadows. We are at the end of a 35 year plan by the Trilateral Commsission to reduce the US living standards. The end goal is One World Government, and the plan gets updated and revised annually to adjust for unforseen circumstances.
In 1970, TLC cofounder Brzezinski, Obamas adviser, wrote a book predicting America would have lower living standards and would lose the dollar as the reserve currency. Starting with TLC President Carter (a man out of the blue like Obama) and squeeze the inflation out of the economy Volcker (the inflation being caused by a manufactured oil crisis), Americans productive economy has been outsourced to Asia, government indicators have been adjusted so that CPI is a lie to reduce wages and ss payments, and our economic growth has been an illusion caused by a inflating credit market debt bubble.
In 1999, Clinton cooperated with a Republican congress, with Greenspans support, to repeal Glass Steagall. They knew this would fuel the sub-prime housing bubble. Greenspan jumped ship before they burst the bubble so as to not hurt his repuation. Paulson was brought in from Goldman Sachs as USTS to help pop the bubble, Bernanke was set up to be the fall guy. GS had of course bet heavily for several years while Paulson was CEO and profited from the collapse. GS gave Paulson a 19 million dollar goodbye bonus, give us a good pop Hank, ok. (wink, wink).
Bubbles are intentionally created and burst to profits the global elite. It's a pump sucking the wealth of the bottom 90%, to the top 0.1%. The money that gets loaned is money created out of thin air, thats the way the system works. They take the profits on the upswing, and when the bubble pops (they pop it), they have reduced their exposure, although they may still take a loss that is miniscule compared to their accumulated profits). Those institutions that fail get bought for 10 cents on the dollar (like BSC), and the big fish get bigger and well positioned for the next bubble. For those banks too big to fail, or whose shareholders are unhappy with too much of a loss- expecting perpetual growth, the Fed comes to the rescue and the taxpayer gets to bail them out.
The next stage will be the demise of the dollar as the worlds reserve currency to be replaced by a World currency, likely carbon based. There will also be a carbon tax. Things will get very ugly, thats why they have set up the police state apparatus. Much worse to come, you ain't seen nothing yet. Good luck.
I was always mystified as to why Credit Card Comapnies and Congress were so hot to change the Bankruptcy laws several years ago down in the United States.
Credit Card Companies were awash in profits making 10's of billions a year and the rate of defaults was miniscule compared to the profits made.
Yet spokeman after spokesman spoke to how worng it was to allow freeloaders to run up Credit cards , then laugh all the way to the bank as they declared bankruptcy and absolved themselves from paying.
The Old Welfare queen driving her Cadillac to pick up her welfare cheque all over again.
Now we have this crisis....People In financial trouble find bankruptcy as an option closed to them as it makes them little more then debt slaves to the end of their lives.
The Conspiracy theory in me wants to say the subprime Mortgage crisis and those revamped bankruptcy laws were somehow linked. They seen it coming and wanted to make sure the Corporations got their nine pounds of flesh, and were able to squeeze blood from stones.
But nah..they would never be THAT far sighted now would they?
PK
Of course, the problem is a lot of people who bought quite reasonably are being screwed by the drop in housing prices.
What the above is missing is that even people who put down reasonable amounts for downpayments, stuck to fixed rate loans, and stuck to housing they could afford are being screwed today.
The problems in the housing market and all the foreclosures are driving prices down. So there are a lot of people who bought quite sensibly who are still seeing their life savings disappear because of this mess.
And of course every plan ignores these people as much as renters are ignored. The bankers get bailouts. And the next group to get bailed probably will be the ones who did indeed bite off more than they could chew and are now in trouble. The people who did it all right and tried to survive in the system as best they can are the ones who always get screwed.
So nice to see the left cheering on everyone's misfortune while this happens.
lance-manoleisure July 29th, 2008 2:40 pm
Good points.
I agree with dcbeltway in that people who 'bit off more than they can chew' should be forced to (to carry the analogy further) spit out the excess, swallow it, or (I guess) choke on it.
However, not all people were in this boat. Some, as lance-manoleisure reminds us, were the victims of fraud. They didn't 'bite more than they could chew.' They were force fed.
The problem is differentiating between the two sets of struggling 'home-owners.'
Indeed, the message for many is that you cannot afford to buy, you must rent.
Fraud is the crime or offense of deliberately deceiving another in order to damage them for profit, and that's exactly what's happened. If you happen to be renting, don't go ask a professional for advice, they may lie to you and the result, apparently, would be your own fault. No laws against "lying", after all you should have known better. Replace realtor, or loan officer with medical doctor, politician and so forth, and the whole thing makes perfect for a kinder, gentler insane asylum.
dcbeltway July 29th, 2008 12:41 pm
I'm with you girl. And old Doom n Gloom's idea works for me.
Oh I'm for punishing the flippers, bankers, real estate agents, and all the rest.
As for the joe-sixpack homebuyer, No one forced anyone to sign on the bottom line at gunpoint so yes you are also responsible for your own financial decision and no one else should pay for them but you. Don't buy things you cannot afford.
http://www.justprice.org/
The solution is simple. Reduce problem loans to their current value, provide a fixed rate loan in place of the adjustable rate, and let the banks and investors lose money.
The unbelievable hostility towards the hundreds of thousands who are losing their homes after being loan-sharked by mobsters is yet another symptom of a diseased, vindictive populace. Bankers, real estate agents, inspectors, fly-by-night mortgage and other scam artists ripped off huge numbers of people in the heady days of the housing boom. They knew full well that they would get their cut and when the music stopped, the Fed would send in the calvary at the end of the day to reinforce stressed uber institutions. To the naive, a bank is frequently hoping that a borrower *will default*. The banks have not walked into their own vault or their own pockets and removed their own money. Keeping things simple: it is the borrower who can *least afford to pay back loans* who is the most profitable. Why Americans aren't rioting in response to this wholesale theft is beyond me. Instead, it's disturbingly: "you signed on the bottom line, thanks for playing, be smarter next time. Now find a place to live, give it a few years and your credit will clear up." The mob cheers, "serve's 'em right!!"
As someone who has been fiscally responsible and forced to rent these past 8 years the less the government intervenes the better. The whole problem is that housing is unaffordable without Mickey Mouse loans. Let prices fall back to reality. If people lose thier homes because they were irresponsible and bought more than they could afford so what? They can rent like the rest of us. This bailout is an enormous burden on the taxpayers and only benefits the Wall Street jerks who created the mess to begin with.
www.patrick.net
I'm sure I am going to get flamed by all the bleeding hearts. I don't care no one cares about me as a renter.
There are two problems with the Grijalva bill. First, it makes too much sense for Congress to pass it. Second, it does not allow for the unrelenting greed of the mortgage holders.
Reagan's "wisdom" aside, the profit motive does not always - or even usually - lead to the best outcome.
jj