The “proposal is positive for the housing market to the degree that it shores up the banks’ ability to lend and prevents banks from closing their doors, that is key to finding stability for the housing market,” says Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School. “But it may not be enough.”
The hitch? The growing number of foreclosures. Nationally, foreclosures rose 12% in August from the month before and were up 27% from the year before, according to RealtyTrac.
“There is no sign of it abating,” Wachter says. “It is likely to worsen in the coming months. This has potential to drive down housing prices further.
“I do not expect a turnaround, unless prices stabilize, until 2010,” she says.
Proposals before Congress have included a provision for loan modifications for mortgages the government assumes, perhaps averting foreclosures.
“I would think that this fund when it acquires whole loans will be working with the borrowers to renegotiate the loan,” says Mark Zandi, chief economist for Moody’s Economy.com. “Given what we’re seeing the FDIC do, working with homeowners with mortgages from failed banks, this works to keep people in those homes.”
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