By Mike Colpitts
The housing rescue bill signed into law by President Barack Obama lacks the scale and budget to deal with the growing foreclosure epidemic. The plan has been watered down by special interests, members of Congress and provides nothing more than an anemic effort to improve the housing market.
At best the effort is a weak move to save as many as 400,000 homeowners from foreclosure through mortgage modifications with lenders aided in part by funds from TARP. It is likely to trigger millions of more foreclosures as a result of its broad failures and Congress’ inability to recognize the nation’s housing crisis as being the worst financial crisis in modern times, according to an analysis by Housing Predictor.
Homeowners faced with foreclosure could now reach 12-million as a result of the credit crisis.
Lawmakers spent weeks working on the plan before forwarding it to the president for his signature as foreclosures increase daily and as foreclosure moratoriums expired. In the end, Housing Predictor visitors, who responded to a survey, were correct saying that Congress would fail to fix the housing crisis.
The new law re-works the government’s plan to help homeowners troubled by foreclosure with the injection of cash to aid lenders’ balance sheets by reducing the amount on mortgages for those who are able to qualify under strict standards. The law expands the existing $300 billion program, but does not clearly specify how much will be allocated to bankers under the program. Homeowners who do qualify will accept a 30 year fixed rate mortgage in exchange for paying an insurance premium on their mortgage.
However, the new provisions don’t offer any aid to investors or those with second homes in jeopardy of foreclosure, estimated to be a third of all properties in trouble or in default in the financial crisis.
Many parts of the legislation were left out of the final version approved by Congress, including a provision by Sen. Dick Durbin, D-Ill., which would have forced bankruptcy judges to reduce mortgage principal in an effort to put homeowners on an equal footing with the banks. Bankers opposed the effort, fearing lawsuits from investors.
The Making Home Affordable Program, set up by the Obama administration to aid homeowners modify loans failed miserably and so far has only helped dozens of homeowners in jeopardy of foreclosure. Bankers encouraged the program to be expanded offering quicker voluntary transfers on properties back to banks in the case of homeowners unable to pay their mortgages.
The efforts also include another edge for bankers when it comes to handling short sale properties or those sold at less than what is owed on a mortgage. The process, which is typically hampered for months by lenders unhappy with the outcome, will be streamlined to get the homes off lenders books more quickly and that could aid homeowners with less damage to their credit than normally caused by a foreclosure.
The process is unlikely to lessen the growing inventory of foreclosed properties hitting the market for sale at bargain rate prices.