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The new Administration in Washington and President Obama’s recent appointments seem to have their fingers closer to the pulse of the American economy than our previous administration. Evidence for this stems from the fact that discussion of loan modifications are finally being seriously considered in the context of macroeconomic debate.
Today, Walter Lippman, Pulitzer Prize winning political commentator would be particularly pleased. Lippman once said, “it requires wisdom to understand wisdom: the music is nothing if the audience is deaf.” Finally, our representatives in this new administration are paying attention to what we at Loanworkout.org have been saying for years, namely, that the solution to the greater economic problems require policies that will not merely address the macroeconomic concerns facing our country, but, instead, address the needs of the average American. Our hope is that the wisdom of the new administration will follow their proclamations with policy that recognizes the tremendous benefit modifications can have on the economy.
The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that are hammering U.S. property values. They would like to spend up to $100 billion in financial bailout money to help borrowers stay in their homes.
Obama, yesterday, warned that further bank failures are likely. Lenders are “going to have to write down those losses,” he also said in an interview on NBC’s Today show.
The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”
“We need to help more people stay in their homes” through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television yesterday. “I’m pleased that the new administration is starting to work on that area.”
The government’s efforts thus far have been lackluster since the foreclosure debacle began almost two years ago and they have relied on voluntary cooperation from an uncooperative lending industry. So far, plans have stemmed the tide of foreclosures wreaking havoc on our nation and as workers lose their jobs in a rapidly weakening economy.
The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession Zillow.com said in a report.
“We will have to do more, substantially more to fix this crisis,” said Treasury Secretary Timothy Geithner, this Wednesday.
Meanwhile, on Capitol Hill, the Senate voted Wednesday night to give a much needed tax break to home buyers in hopes of sparking home buying in the housing market. This proposal is being pushed by none other than the beat up home builders. The tax break would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit.
Chairman of the FDIC, Sheila Bair’s plan is gaining momentum and support from the Obama administration.
The chairman of the U.S. Senate Banking Committee said that a proposal from FDIC’s Sheila Bair to reduce foreclosures is winning support in the Obama administration.
“What I’ve gathered is that the FDIC proposal has gained some traction within the Treasury,” Sen. Christopher Dodd, Connecticut Democrat, told reporters after a hearing.
“I don’t want to suggest that they’ve settled on it exactly as it’s been proposed by Sheila Bair. But its stock as a proposal has clearly risen,” said Dodd.
Blair has proposed preventing about 1.5 million foreclosures under a plan that would reward participating lenders by sharing the cost of defaults on modified loans.
Dugan said in an interview yesterday in Washington that the approach should include a provision that would delay a government guarantee for a modified mortgage for a set period of time to ensure that the loan is sustainable.
“It is really important that when you have a modified loan that the payment become affordable to the homeowner,” Dugan said. “You wouldn’t want the government to be on the hook for someone who borrowed a lot more in credit-card debt, or what have you, and then couldn’t make their payments.“
