There seems to be bipartisan support for some type of Congressional bill that would help keep other at risk home owners from foreclosing. Now Legislators are trying to figure out how to make it all work on a National scale.
There are markets in places like California where the average sale price is mucho higher than ours. So one of the key points is: where to set lending limits. The Bill in question, if you remember or have read about it, would allow The Federal Housing Admn (FHA) to make fixed loans to people who really don’t qualify for them under current guidelines……and they are estimating almost a half a million people could qualify for these new loans. And President Bush is still threatening a veto. Today’s Senate vote was 83 -9, pretty overwhelming support.
We still have to figure out how to pay for this. What does it cost? $300 billion?
You can read about it. Here is the AP story by Julie Herschfeld Davis. What do you think?
6/26/08 The devil is in the details for sure. Now a Nevada Senator has decided energy credits have something to do with the Mortgage Rescue Plan. Typical senatorial move but exasperating nonetheless.
4 responses so far ↓
1 Henry Reardon // Jun 25, 2008 at 7:17 am
The actual cost will be significantly higher than that figure once you factor in the continuing price declines into the mix and increased losses that FHA and the GSEs (Fannie/Freddie) will accept.
Of course, this whole bill is contingent upon the GSEs being *willing* to buy these mortgages from the banks. Yesterday it was announced that Fannie and Freddie, instead of using their cash to buy mortgage securities, are setting aside the money as loss reserves. FHA also stated last week that they were not interested in taking on higher debt assumptions.
Folks, this is nothing more than a game of “who gets the bill?” At the end of the day either taxpayers will absorb the cost or the banks will absorb the cost. We’re not fixing the problem, we’re simply passing the bill from one person to the next.
2 Carole Cohen // Jun 25, 2008 at 1:04 pm
It is a lot of money, Henry, there is no question about that. Is the benefit worth the shifting of expenses? When you factor in the losses and especially to cities of revenues if these homes continue to foreclose at this rate. The truth is in there somewhere.
3 Henry Reardon // Jun 29, 2008 at 3:09 pm
Is the benefit worth the shifting? Absolutely not. We are essentially transferring private loss (bank) to the government (taxpayers). The end result is that the losses will fall on the public one way or the other.
By providing an explicit financial backstop to lenders, the federal government winds up allowing them to continue the business as usual that got us into this mess! As you should well know our federal tax code and laws already provide a significant backstop for the housing industry as a whole (mortgage interest tax deduction). This guarantee, along with the housing bailout plan will prevent banks from being more cautious in lending, will prevent builders being more judicious in overbuilding, will prevent local governments from being smarter about allowing rampant overbuilding for the desired tax dollars that rarely appear (once you factor in the implicit subsidies that local governments provide in the form of tax breaks, infrastructure loans/grants, eminent domain proceedings, etc.).
In short, Carole, the entire real estate complex which is comprised of lenders, builders, realtors, appraisers and buyers was only allowed to operate as it has because of implicit government support. If government steps in to provide a safety net then the excess will not be properly flushed from the system. and the problem will linger.
Again, I point to the example of Japan’s banks in the 1990s: instead of allowing them to fail, implicit government supports led to “zombie banks” for the better part of 10 years which only existed because of government support and could neither lend nor expand the financial base in any meaningful way.
Housing the past 10 years has been the most monumental misallocation of capital resources in human history. They are not assets, they are places to live and they are liabilities until and unless sold at a profit.
4 Carole Cohen // Jun 30, 2008 at 9:56 am
Henry, thank you for your comments. I can’t help but wonder if the solution is a permanent, stricter method of obtaining a sub prime loan. Let FHA handle most of them. Yes, there will be fewer mortgage lenders, there already is a decrease due to the crisis we all experienced. The old thinking about everyone owning a home doesn’t really serve every person well, at least in my opinion (and maybe this is an odd opinion for a realtor®).
I’m reading a biography of John Mitchell and there is a chapter devoted to the ITT conglomerate/monopoly travails with the Feds over whether or not they should be allowed to keep buying up companies. This was pretty much a fait accompli by the end of the ’60s anyway, they were huge. But their major argument was that the economy would suffer greatly if they were not allowed to proceed as they had in the past. That’s a typical argument I have with financial types when I say ‘why doesn’t everyone just cut up their credit cards and let’s get back to cash and carry’ and the financial people say oh no no no the economy depends on the credit companies. Same answer when I get on a tirade about unscrupulous charges by some credit companies. Don’t shut them down our economy will be in a mess.
Back to mortgages: if FHA becomes the primary supplier of sub prime loans and if instead of it being a five year plan thirty or 15 year fixed loans become de riguer, wouldn’t that help?
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