Skip to comments.House Democrats eye government mortgage buyouts
Posted on 03/05/2008 3:37:43 PM PST by kiriath_jearim
WASHINGTON (Reuters) - As the U.S. government edges toward a more forceful response to the housing market crisis, a senior Democrat on Wednesday said a bill being created may call for federal purchases of distressed mortgages.
House of Representatives Financial Services Committee Chairman Barney Frank said the bill from House Democrats may be unveiled next week to tackle what he called the worst housing slump since the Great Depression of the 1930s.
The government is scrambling to stem a wave of failing loans as the rate of new foreclosures hits a record level and millions of marginal borrowers struggle to make payments on home loans that were offered under lax credit terms.
Frank's remarks came on the same day that Treasury Secretary Henry Paulson reiterated opposition to a government entity to buy distressed mortgages -- an idea proposed by Senate Banking Committee Chairman Christopher Dodd.
Paulson told a House committee hearing that he would prefer continuing to rely on private-sector initiatives, such as the Hope Now program, in which mortgage lenders work out troubled mortgages with easier terms, one borrower at a time.
Such steps are meant to ease the blow on homeowners and the economy from a deflating home price bubble. But Frank said the Bush administration and Congress need to do more.
"If the president continues to insist that we don't do anything beyond Hope Now, then we're going to have a longer and deeper economic problem than is necessary," Frank told reporters after meeting with House Speaker Nancy Pelosi and a group of prominent economists and former government officials.
Major Wall Street banks have taken multibillion-dollar write-downs as home loans made as recently as mid-2007 go bad.
Federal Reserve Chairman Ben Bernanke said on Tuesday that banks may have to write down the principal of some troubled home loans to ward off greater losses from foreclosure.
California's Pelosi and Massachusetts' Frank, both Democrats, met with some of the same economists in December, including former Treasury Secretary Lawrence Summers.
Despite sharp interest rate cuts by the Federal Reserve, Summers said, "The outlook for the economy, on a consensus basis, probably looks bleaker today" than at the time of that December meeting.
After the meeting with Pelosi, Summers called for "vigorous approaches with respect to broad problems in the credit markets that are now affecting the municipal markets ... the student loan markets, as well as spreading into other sectors."
Another economist who was in the meeting, Mark Zandi of Moody's Economy.com, said: "The economy is contracting. It's well on its way to recession ... The fundamental problem is what's going on in the housing and mortgage markets."
He praised a $168-billion, two-year economic stimulus plan approved last month by Congress and President George W. Bush, which contained some housing help, as well as Hope Now.
But Zandi said he had doubts about whether that was enough, adding: "We're going to continue to struggle without a greater, more aggressive policy response."
Republicans in the Senate on Friday blocked a Democratic proposal to curb rising foreclosures by overhauling bankruptcy law and spending more on fixing distressed properties.
Dodd, the Senate Banking Committee chairman, has proposed setting up a federal entity to spend billions of federal dollars buying up faltering home loans at a discount.
Under the Connecticut Democrat's proposal, the entity would offer refinancing with new loans under more favorable terms, with the loans insured by the Federal Housing Administration (FHA) or backed by government-sponsored housing finance giants Fannie Mae and Freddie Mac,
Frank said the goal of the House Democrats' bill would be "to have the lenders ... accept the fact that many of these mortgages have to be substantially written down."
If they do that, he said: "We would then be prepared to have the federal government ... purchase some of the written-down mortgages, to the extent that the amount they were written down to could be paid off by the borrower."
Glenn Beck argues that we need to let ourselves have some small economic problems now to avoid bigger ones later. In other words, banks in trouble because of bad loans? Let them die.
USA as housing project. Capital idea!
I lived through the seventies and through jimmy Carter and 20 % rates. This is not the biggest slump since the depression, juxtapose the past decade it is a big slump. I do not see how government intervention is going to help our economy.
SWEET ... let them pass this. I'll just quit my job, stop paying taxes and watch the federal government buy my house from me.
I don’t think this is meant to help the economy, it’s more for consolidating power for the blowhard seantors by creating more dependents.
Those of us who work hard and pay our mortgages will be next. We’ll be choked to death by taxes on our properties, the energy we use to keep ourselves warm in the winter and the fuel we use to drive to work so we can pay ever increasing taxes on our earnings.
Why not just restore the severabilty of unsecured portions of home loans in bankruptcy court?
PRE-2005 reform, the debtor could “lien strip” an under collateralized loan and renegotiate the secured portion under the auspices of the bankrupcy court.
This meant lenders who lent 125% loan to value were out the 25% stupidity of the lender value of the loan.
Under the current law, there is the stupidity of the lender protection because the full 125% is protected. Thus people find it EASIER TO WALK AWAY and buy another house with a bit more down and perhaps a percentage point or two more loan interest.
They could even make a new ch13 which is ONLY for the home mortgage loan negotiation and is open and closed in the time it takes to redo the loan.
You’d think the Panic Button would be knocked off the control panel by now from the liberals hitting it so hard all the time.
I’m a contractor and one of my customers is s person that buys houses at FHA and FMHa auctions. The condition of these houses when the people leave are very telling about the mind set of people that are given everything. These houses have excrement on the walls, holes in the walls and doors, these houses are disgusting.
Wow, I can go fall down the stairs at my crummy job, collect Workers Comp. and then not be able to pay my mortgage and let you and all the other FReepers bail me out.
A close friend rehabs appartment buildings and does condo conversions. He says the same thing about section 8 renters.
“Im a contractor and one of my customers is s person that buys houses at FHA and FMHa auctions. The condition of these houses when the people leave are very telling about the mind set of people that are given everything. These houses have excrement on the walls, holes in the walls and doors, these houses are disgusting.”
Perhaps these people are “venting” their frustrations at being unable to make the increased payments on their ARMs, balloon payments or similar “creative financing” that got them hooked on easy “First-Time Homebuyer” mortgage plans “custom-made” to fit them.
When people are given everything all their lives they have no sense of value, no respect , no gratitude and no concept of responsibility. It is actually cruel to allow people to live under the wardship of the state, a class of non productive miserable people are created.
I do not believe FMha or FHA loans are ARMs.
Moral Hazard! Moral Hazard! Moral F@$#in Hazard!!!!
“I do not believe FMha or FHA loans are ARMs.”
Many people opted for other loans besides FHA or VA, etc. I remember in Las Vegas a few years back with real estate brokers and mortgage companies offering “creative financing” to help those who have “less than stellar” credit.
This isn’t a slump. Its been caused by a massive overbuild of housing. And now states like California, Nevada, Arizona, and Florida are sitting on inventories that will take many years to work out.
I’m probably reading into what you have written, but it sounds like you feel the people losing their houses are being victimized. I have an ARM, I knew the risks before I signed the contract. I liked the terms for getting into the loan, if I get in trouble with this loan, it is my fault and I ned to find a way to pay my debt.
If a bank does not perform due diligence on people they are lending to or they loan 125% of the value of a property, they deserve to suffer the consequences. These are gambles by lenders and borrowers, it is not the tax payers or responsible home owner’s responsibility to bail them out.
If I can’t make my payment, I have no right to destroy the house on the way out, if I do this I should be locked up and forced to pay for the damages when I get out
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