Busted: Bankers and The Global Economy

April 11, 2008

The Housing Bailout Battle

Filed under: banking, credit, government, politics — Tags: , , , , , , — digitaleconomy @ 7:26 pm

President Bush has decided to scramble for his own federal aid project for homeowners. At the end of the eleventh hour, Bush has decided to head off foreclosures, clashing with both parties who want the government to step in with a broad housing rescue.

Bush plans to use an existing Federal Housing Administration program to enable more low and moderate income borrowers to refinance into government-insured mortgages that they can afford.

The Democrats have been pushing to have the FHA back $400 billion in restructured loans for distressed borrowers if lenders were willing to take a substantial loss on mortgages. The idea is that bankers owe government and taxpayers something for bailing them out of their fiscal crisis.

The “if proviso” appears to need plenty of definition. Clearly, the pressure is on for bankers to take some losses, but most likely taxpayers will absorb most of the losses through the FHA.

Bush doesn’t agree. His plan is designed to reach about 100,000 borrowers and would protect lenders from taking large losses. He intends to expand a program known as FHASecure, which is designed to help homeowners with some equity in their homes. The borrowers would need to current with house payments. The new FHA is designed to help the borrower avoid hefty rate hikes built into old loans into a government-insured fixed-rate loan.

President Bush is confident enough to have issued a press release advertising his future provision. Ron Withers, a Florida mortgage broker consideredmy thoughts that the FHASecure initiative was woefully inadequate from a pre-emptive approach. To me it sounds somewhat ridiculous that a program would not have some provisions to head off this problem….before it became a problem.”

Democrats are bitter. Wary of the prospect of inaction, they have worked to develop an assistance plan for subprime borrowers. They accuse President Bush of stonewalling and attempting to subvert their plan at the last moment.

Democrats say that Bush’s plan does little to help struggling homeowners that are truly hard-pressed. Democrats intend to allow refinancing even if homeowners are behind on payments.

The current administration claims that Barney Frank’s Democratic bill would put the government at risk while forcing lenders and investors to take losses. Unfortunately, the president’s plan ignores the fact that when foreclosures occur, the lenders and investors already take losses of up to 25%. Lower home prices and a weak market would magnify those losses.

The administration rejects the idea of allowing lenders to sell distressed mortgages through the government. They feel this action would put a large number of non-performing loans on the shoulders of taxpayers.

Democrats want to provide loans and grants for rehabilitation and purchasing foreclosed homes. Bush wants to stick closer to his yearly budget and called the Democratic plan “a costly bailout for lenders and speculators.”

Some lawmakers in both parties are cool to the Senate bill, stating that the bill would do little to help people staring foreclosure in the face and would fail to bolster the shaky housing market. Meanwhile, Democrats seek to combine the Senate bill with a bill that would manage tax breaks for first-time homebuyers in low-income rental housing.

Clearly, lawmakers have lost sight of what needs to really be accomplished: a comprehensive plan that actually does what it claims to do without pork-barrel spending.

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4 Comments

  1. It sounds as if Bush is trying to honor his $4 trillion budget from earlier this year. He actually is trying to keep the Dems from spending money? Thats a first! Perhaps that new feeling of lame duck is kicking in and he don’t like it!

    Pingback by trendyname — April 11, 2008 @ 7:29 pm

  2. Great post! Sounds like the Demoncrats want to bring in some new pork barrel spending.

    Pingback by bailybailout — April 11, 2008 @ 8:00 pm

  3. The bill is too little, too late for many homebuyers. There are already small tent cities in California where residents live because they lost their homes to banking fraud, poor decisionmaking and job loss.

    Pingback by orlandorealestatenewsblog — April 11, 2008 @ 8:35 pm

  4. Abolish: Federal Reserve, IRS, Bank of Rome and any private banker who tries to control human life. Find ways to pay off your credit cards and then cut them up. Go through fasting every other day, without eating so that these private banks make no interest. Avoid going to hospitals,so that you will not be gouged with medical bills, instead rely on going to hospitals outside the country for lower prices. Start doing more outsourcing. Do less shopping at Wal-Mart.

    Comment by William Rist — April 12, 2008 @ 10:40 pm


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