Can the government help America get out of the housing market crash? I tend to think it’s doubtful, especially for this particular government. Call me jaded and bitter or just call me ill-informed, but I just don’t trust everybody that would be involved in passing some type of bill that helps out with the mortgage crises is sincere. Let’s face it, in government everybody has their own agenda, and the real estate market has just as many lobbyists as the next guy. Even if they do end up passing the long embattled rescue package, is it going to help out the little guy or the lenders? To tell you the truth, I’m playing devil’s advocate here, because I’d love to see the Senate pass some type of bill that helps regulate the mortgage industry so that we can get rid of predatory lending.
However, in typical fashion, an omnibus housing rescue package, some elements of which have been debated in Congress for years, had been on track Wednesday to finally move toward enactment but hit a speed bump that puts in question when lawmakers will vote. In a press conference Wednesday morning, Senate minority leader Mitch McConnell, R-Ky., said he and the Senate majority leader, Harry Reid, D-Nev., have reached a general agreement on “the most pressing amendments” and that the bill “is likely to pass this week.” But the Senate got bogged down by a procedural maneuver by one senator who insists the body include a series of energy tax breaks in the housing bill.
Ah-ha! This is exactly what I was talking about. A bill that was supposed to help with the housing market is being bogged down by somebody in Senate who is trying to pad it with benefits that suit their own agenda. Banking Committee Chairman Christopher Dodd, D-Conn., said lawmakers were close to getting passage on the bill “if only we can get it to the floor.” This package is supposed to help the more at-rick borrowers. So instead of manipulating these people with jargon they can’t understand and sticking them with homes they could never really afford anyway, the Senate is trying to come up with better, more reputable ways of helping lower-income families’ move into their own piece of real estate. Ok, it sounds good, but what does this package really do?
One of the positive aspects I found out about this housing market package is that would change how key players in the mortgage market are regulated, which they hope will in turn create more activity in the housing market. But can regulating mortgage lenders really generate heat in the real estate industry, or is this an example of a little too little a little too late? One thing we do know is that we are beginning to see the real estate industry crawl its way back to a buyer’s market, so I suppose keeping a closer eye on lenders isn’t a bad thing. But if the Senate can’t come up with a package that’s devoid of hidden bargaining chips, how can we realistically expect them to be the housing market’s watch dog? Making matters worse is the fact that President Bush has declared he will veto the bill in its current form.
Actually I don’t know if that’s a good thing or a bad thing, I just don’t happen to trust anything President Bush does. One of the sticking points is a provision that would give $4 billion in aid to states to buy up foreclosed homes. The White House believes this would help lenders more than the public, but I don’t know. There are a lot of reasons it’s a bad thing to have a bunch of empty foreclosed homes littering the landscape; namely the fact that it brings down the property value of the other homes in the area. Here are some more of the provisions in the package as it stands right now
The provision that has garnered the most attention is one that would allow the Federal Housing Administration to insure up to $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers’ homes. The program, which would be voluntary for both lenders and borrowers, would be paid for in the Senate bill by the premiums borrowers pay and by fees from Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), the two government-sponsored enterprises that guarantee the purchase and trade of mortgages. First off, that’s a whole lot of gobbly gook to most people, I barely understand it. In a nutshell their saying they, the government because that’s what FHA is a government agency, will guarantee loans for up to $300 billion to lenders who are big enough to shell out money to lower-income families’ that otherwise wouldn’t have a snow balls chance in H— of getting one. Ok, that sounds good, but is it?
Critics of the plan say lenders are more likely to saddle the program with their worst loans – those most likely to foreclose, which is exactly what happened during the housing bubble and caused the housing market mess we’re in right now. The Congressional Budget Office estimates that the program would end up guaranteeing 400,000 loans worth $68 billion, and of those, about a third would result in default. So I ask you, how is that any different than the realities of the real estate market right now? Another provision would raise the cap on the size of mortgages guaranteed by Fannie and Freddie to $625,000 from $417,000. The House version raises the limit to nearly $730,000. The bill also calls for an independent regulator to oversee Fannie and Freddie, but Democrats are trying to amend the bill so that the regulator would not be put in place until the next president takes office.
Ultimately, the problem is the fact that many people don’t trust the government, and when somebody raises concerns about whether these provisions are good for the buyers out there or the lenders, we have to be willing to listen. That being said, the bill won’t fail or pass based on what we think, so I suggest everybody educate themselves as much as possible, especially concerning these possible new lending practices. If you don’t, you may find yourself one of the thousands of people facing foreclosure.
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