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.
BIG LOSSES
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'S PLAN
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."
Wait until Sen Dodd (or Dud??) begins taking money away from the people who did not foolishly through it away the last several years and starts giving it to those who had a great time doing so.
Remember, only in the US can a big looser be rescued by government by taking money away from those who work hard to make it; it’s the new, wild, upside economics in the upside down USA!
“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.”
***
I’m not expressing sympathy with homeowners in this matter. But I think about the old adage “If it sounds too good to be true, it probably is.”
Or, maybe they are the spoiled rotten children from doofus parents who expect the world to bend to their will and cannot accept the fact that they really are not the center of the universe and it is really not “about them” like their loser parents told them it was!
absolutely, cliche’s are so cliche’, but they became cliche’ because they are universally true
By "overbuild" I assume you mean that too many houses have been built. But the media tell us that it is the ARMs coming due and the borrowers can't make the mortgage payments that constitute the problem. If there was an over supply of housing then the housing prices should fall. That is not what is happening. Prices are sky high, so high that the average middle class family is being priced out of the market. Thus the market is starting to experience a slow down and some prices are starting to fall.
Trouble is a lot of people have borrowed aganst their equity at the high price and in some parts of the country those home prices aren't holding. It seems to me that various regions of the country are experiencing different types of problems though; like the states you mentioned.
In western Massachusetts many have mortgaged their houses beyond the properties ability to secure the loan. Many older homes are for sale, prices haven’t slipped yet, but houses are not moving. There is still new construction going on, but that has slowed some.
“Or, maybe they are the spoiled rotten children from doofus parents who expect the world to bend to their will and cannot accept the fact that they really are not the center of the universe and it is really not “about them” like their loser parents told them it was!”
***
You might be correct. They could be (1) all of the above; (2) none of the above; (3) some of the above; or (4) ice cream has no bones.
“But the media tell us”
The media has been criminal in their reporting of the real problems. The problem is that supply and demand were thrown out the window by a combination of factors in this housing ponzi scheme driven by such factors as liars loans, mortgage fruad schemes, corrupt appraisers, and homeowners using their equity like it was a cash machine.
This fueled a massive artifical demand of house building.
Its going to take years for all this crap to be worked out of the system and the government isn’t helping by all these bailout and economic stimulus package schemes to keep the ponzi scheme proped up. Housing prices have started to correct in the bubble markets, but there is plenty of markets that are easily 20 to 30% or more overvalued, but will take much longer to correct because the local economies are somewhat stable. But they will correct. We are just in the early stages of this.
I’m definitely feeling that (homeowner, commute 250 miles/week, etc.), for sure.
On another thread, I suggested that banks might need to re-negotiate the ARMs to allow the homeowners to be able to continue making payments. Another poster told me it wasn't possible because the loans had been sold and the corporations who bought the loans would file suit. I still think they'll either re-negotiate the loans and we can get a soft landing or all H#LL can break loose.
With all these plans for bailouts I am afraid regulations will be needed that the only mortgage one can have to purchase a home is a 30 or 15 year fixed rate fully amoritizing with 20% minumum down payment with strict debt-toincome guidelines (full docs). I find this idea abhorant but everytime there is some problems the gov’t swoops in to use our tax money to bailout speculators, people who should of not been in a home in the first place, etc. I purchased a home I could afford with the standard 30 20% down. Now I make payments on my mtg and am expecte through my tax dollars to basically subsidize someone’s mortgage. As part of my program I would ban cash out refinances, 2nd mortgages, etc. This will stop people continuously refinancing and cashing out to live lifestyles beyond their means. THen when the goood times are over they become sob stroies on TV. As I said before this proposal sucks but it is obvious there is no such thing as letting the market work in residential real estate.
To me, it makes business sense for the banks. Or, they can write off multi-billion dollar losses and go belly up.
A friend of mine recovered one of his rentals only to find the cabinet doors had been removed & the cabinets were now a chicken coop.
Yeah, my house in Wi has been on the market for a year, I’d love to have the feds buy me out....
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.