Foreclosure Prevention Program is a Hot Topic

by admin on February 27, 2009

Republicans and Democrats alike debated the merits and drawbacks of $75 Billion of the $700 Billion stimulus bill. The first contentious point is the proposed incentives of between $1,000 and $1,500 a loan for the mortgage owners to perform a modification of the loan terms. Many Republicans are crying that this amounts to a further bailout of big business and the banks that helped get us in this mess (kind of ironic that Republicans are taking this tact now, but I digress).

However the biggest sticking point is the debate about whether or not to grant bankruptcy judges the power to modify the principal balances on the primary mortgage for borrowers going through bankruptcy. Republicans the lending industry fiercely oppose this and don’t want to see primary mortgage balances modified. In my opinion we’ve fallen very far, very fast and need some drastic measures to get our housing market stabilized. If it takes granting some authority to bankruptcy judges to make modifications using their best judgement, that may help level things out quickly.

The housing market is suffering mightily, no one is under any illusions to the contrary. The Commerce Department just released a report that seasonally adjusted new home sales were 309,000 – the lowest rate going all the way back to 1963. This new low blew past the previous record in 1981, a time when the economy was struggling as much as it is today.

Housing needs a jolt of electricity to help at least put things on an even keel. Right now there is such a free fall happening that no one is buying because they have no idea where the floor is. It is scary out there for new buyers because the longer they wait the better deal they get and consequently no one wants to be the first person to jump when they can get a better deal next week or next month. The government is the only institution out there that can provide the financial backstop for our ailing markets. The big banks have been snowed under by the gorging they did on mortgage backed securities during the boom years and now they are suffering massive losses as housing takes a huge dive. We need the government to step in and do their part and then when things turn around as they inevitably will, government needs to get back out – hopefully as swiftly as they came in, but I won’t cross my fingers on that latter part.

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