Hope at last for struggling homeowners
The government's financial bailout team is turning its attention to helping struggling homeowners avoid foreclosure -- finally, some would say. Washington Bureau Chief John Dimsdale has details.
A foreclosure sign in front of a house for sale in Stockton, Calif. (Justin Sullivan/Getty Images)
More on The Economy, Housing - Real Estate, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: Let us start talking about mortgages by relaying this grim fact that came out: RealtyTrac reported this morning foreclosure filings nationwide rose 71 percent last quarter over the same time last year. So, our Washington Bureau Chief John Dimsdale reports the Feds are working on an offer that lenders aren't going to be able to refuse.
John Dimsdale: The Federal Housing Administration already guarantees new loans to borrowers facing foreclosure. If the lender agrees to reduce the outstanding principal. But at a Senate Banking Committee hearing today, New York Democrat Charles Schumer told FDIC chairman Sheila Bair that's not working.
Charles Schumer: Do you have any hope for a voluntary model? I don't.
Sheila Bair: No, there needs to be a package of carrot and stick incentives. I agree with that.
For the carrot, Bair said she's working with the Treasury Department to offer mortgage lenders federal loan guarantees if they agree to easier terms for homeowners who can't afford their mortgage payments.
Bair: The aim is for loan servicers to offer homeowners more affordable and sustainable mortgages.
The stick is banks lose money on foreclosed properties. Bair says the FDIC has already helped 3,500 borrowers who held mortgages with the failed thrift IndyMac, which FDIC took over this year. Bair wants the reduction of mortgage payments to around a third of the family's monthly earnings to be a standard. Eric Halperin with the Center for Responsible Lending agrees a standard is necessary.
Eric Halperin: What we need is a program of mass modifications, that allow us to do modifications quickly. This individualized approach of voluntary actions by lenders doing modifications one at a time, simply can't keep up with the number of homes that are going into foreclosure.
The Wall Street Journal estimates the loan guarantees would cost $40 billion, and that would come out of the $700-billion bailout.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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10/23/2008
Why do we want to help people who cannot afford to buy homes in the first place? It is true that some may lose their jobs. But it is their responsibility to keep enough money in case of job loss. Maybe if I stop being a responsible borrower by stop paying my mortgage for a few months, Sheila Bair will come and force my bank to lower my monthly payment.
From Las Vegas, NV, 10/23/2008
I am a nurse, with no economic training, so perhaps my ideas are foolish, but here goes. Why can't the mortgage lenders re- write mortgage contracts with people facing foreclosure to spread the payments out over a 40-60 yr. span in order to make the payments affordable. This would allow the bank to keep the same principal amt owed to them, and help the mortgagee make the payments and keep their home. In the long run, I believe everyone would win, and it wouldn't require handing taxpayer money over to reduce principal (which I find objectionable because I have always kept my expenses within budget, even if I couldn't live as opulently as I might have liked). Thank you for your time. Sincerely, Carline Allen
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