U.S. readies stronger lifeline for homeowners

jackalope

Former Staff
Jan 2010
51,139
17,672
Maine
U.S. readies stronger lifeline for homeowners


(Reuters) - Homeowners who owe more than their houses are worth will get new help to refinance in a government plan to be unveiled as early as Monday to support the battered housing sector, sources familiar with the effort said.

The Obama administration has been working with the regulator for Fannie Mae and Freddie Mac to find ways to make it easier for borrowers to switch to cheaper loans even if they have little to no equity in their homes.

The regulator, the Federal Housing Finance Agency, intends to loosen the terms of the two-year-old Home Affordable Refinance Program, which helps borrowers who have been making mortgage payments on time but who have not been able to refinance as their home values have dropped.

Officials have been frustrated that attempts to bolster housing -- the epicenter of the deepest U.S. recession since the Great Depression -- have borne little fruit. Some top Federal Reserve officials want the central bank to consider buying more mortgage-backed securities as a way to help.

While housing prices have stabilized recently, they remain almost a third below the peak reached in 2006.

HARP has been criticized by both Democratic and Republican lawmakers as ineffective in reducing foreclosures, and the changes under consideration are unlikely to be a panacea.

After meeting with the head of FHFA earlier this month, one lawmaker said an expanded program could help as many as 600,000 to one million troubled borrowers avoid foreclosure.

But that is only a fraction of the estimated 11 million homeowners who are underwater, meaning they owe more than their homes are worth.

more: U.S. readies stronger lifeline for homeowners | Reuters

I'm sure the people they help will be very grateful, but it doesn't sound like it's expected to be all that effective in stabilizing the housing market.
 

Seraphima

Former Staff
Aug 2010
8,278
2,931
Pardon me if this is a stupid question, (economics is not my strong suit), but shouldn't they focus on regulating banking and how mortages are dealt out rather than trying to prop up a failing system? The only reason we made it through the recession relatively unscathed (and our housing market did suffer some), was because of the regulations we have in place. Maybe I've bought into some brand of clever propaganda here, but I would think the US should take a lesson from that and try and model their system so that it has similar checks and balances.
 
Nov 2005
76,560
10,256
Richmond Va
Pardon me if this is a stupid question, (economics is not my strong suit), but shouldn't they focus on regulating banking and how mortages are dealt out rather than trying to prop up a failing system? The only reason we made it through the recession relatively unscathed (and our housing market did suffer some), was because of the regulations we have in place. Maybe I've bought into some brand of clever propaganda here, but I would think the US should take a lesson from that and try and model their system so that it has similar checks and balances.
Agreed!
You can't go putting band-aids on open wounds while letting the ones yielding the swords run rampant.!
 
Jun 2011
1,474
217
Pardon me if this is a stupid question, (economics is not my strong suit), but shouldn't they focus on regulating banking and how mortages are dealt out rather than trying to prop up a failing system? The only reason we made it through the recession relatively unscathed (and our housing market did suffer some), was because of the regulations we have in place. Maybe I've bought into some brand of clever propaganda here, but I would think the US should take a lesson from that and try and model their system so that it has similar checks and balances.
Mortgages are actually heavily regulated. There were two loans that were suspect; the NINJA loans which were just out and out fraud (they WERE illegal) and ARM loans (adjustable rate) which weren't

Most mortgage delinquencies are still caused by the fact that the homeowner lost his or her job and or acquired new employment at a lower wage and now a lot of these houses are seeing the homeowners upside down.

So, what happens? Well, you can have a short sale of course if you have the money to cover the difference (most don't of course), in which case you need the permission of the bank (otherwise the mortgage won't get discharged).

But part of having lower interest rates and the potential benefit that it can have for the economy is that a homeowner @ 5.75% in a 30 year fixed can 'trade in' that mortgage for a 30 year fixed at 4% and that DIFFERENCE is hundreds of dollars per month.

But what happens if the homeowner is 'upside down' - well in that case there's no mortgage lender that will step in, so that homeowner will not be able to take advantage of the lower rates even though the rates are out there.

My guess (because I haven't read it) is that the Federal Housing Agency is going to guarantee some portion of the refinance's equity.

Other attempts have been made to try to prop up the pricing of houses which I don't think is a good idea. If you OWN a house that stinks; but if you haven't bought one yet, buying cheaper means that your mortgage payment will be lower, so there IS a silver lining to it.
 

Rasselas

Moderator
Feb 2010
73,045
51,182
USA
Pardon me if this is a stupid question, (economics is not my strong suit), but shouldn't they focus on regulating banking and how mortages are dealt out
I think they have done, actually. I'm not sure of all the details, but today a mortgagee making a new purchase has to put down 20%, which didn't used to be the case. Credit has to be better, and they are generally making fewer loans. So it's not that they have ignored this area.
rather than trying to prop up a failing system? The only reason we made it through the recession relatively unscathed (and our housing market did suffer some), was because of the regulations we have in place. Maybe I've bought into some brand of clever propaganda here, but I would think the US should take a lesson from that and try and model their system so that it has similar checks and balances.
From what little I understand of it, the Obama plans allows for refinancing under better terms, so people can get a refinance of their less than 20% equity mortgage without paying private mortgage insurance and other assists of that kind.
 
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