Posted: 03/12/09


Solving the Foreclosure Problem: Does Anybody Really Have a Plan?

Congress passed the $787 billion dollar economic stimulus package, the American Recovery and Investment Act, but we're told nothing in the plan directly addressed the foreclosure problem. Interesting. Most of us seem to understand that the real estate fiasco was the underlying problem that brought down Wall Street and our economy. We've been told that banks cannot begin lending and easing the credit crunch until someone comes up with a way to value the financial instruments on their books... instruments constructed from other instruments, ...constructed from the bundling of mortgages, ...many of which have been foreclosed upon (or are now or soon to be in foreclosure.)


Yet rather than address foreclosures, the root of the problem, this Democratic congress passed the "sending spree " bill of the millennium... complete with a toy train and cute speckled mice. The American Recovery and Investment Act, as they call it. President Obama stated he would sign the bill when it reached his desk. Many hoped for better judgment and when disappointed began to wonder who was running this country... Nancy Pelosi or Barack Obama.


So, with the stimulus bill signed President Obama was still faced with the real problem... foreclosures. On March 4th, Secretary of the Treasury, Timothy Geithner released his initial plan for dealing with the foreclosure mess. The Treasury guidelines enable servicers to begin modifications of eligible mortgages under the Administration's Homeowner Affordability and Stability Plan. This two part plan consists of The Home Affordable Refinance Program and The Home Affordable Modification Program.


The refinance plan will be available to "4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac," according the the Treasury press release.  "Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%.  Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today's lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan." The modifications have been designed to provide assistance to "responsible homeowners." The program ends June 2010.


The modification plan will help "up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments," the Treasury Department states.  Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department's program guidelines are "expected to become standard industry practice" in pursuing affordable and sustainable mortgage modifications.  This program will work in tandem with an expanded and improved Hope for Homeowners program under HUD.


Summary of Guidelines

Modification Program Guidelines



Okay. That's a huge task and at least it's a stab at the problem. But there is a lot of anger out there regarding responsibility and taxpayers don't want to foot the bill for those who bought more house than they could afford, took out equity lines of credit and spent like crazy. Secondly, do we really want to expand the lending criteria for Fannie Mae and Freddie Mac to above 80% loan to value? And what is meant by the "expansion of the Hope for Homeowners program" the Treasury is talking about? Is that TARP money for expansion or new money? To date, there have been no further notices published on the Treasury Department website or its transparency website


What about the private sector? What programs are out there right now that don't involve government assistance and are they working? Take a look at the Neighborhood Assistance Program (NACA). No taxpayer money involved. It is a non-profit, HUD certified counseling agency that provides a Home Purchase Program and a Home Saving Program. They advocate against big lenders who refuse to restructure mortgages that would allow families to stay in their homes.


So here's the take away. The Big Government plan shifts the burden of the mortgage restructuring to the taxpayer. Private sector programs such as the NACA put the burden where it belongs. On the backs of the lenders who made bad loans and those who took the bait. Why should you and your grandchildren pay for their mistakes? Get involved. Stop the waste of our tax dollars! Let capitalism work!