The proposed program would allow FHA to help troubled borrowers reduce their interest rates if the actual lenders went along with a cut in the principal amount of the loan.
This is in the lenders best interest because in a majority of circumstances the fair market value of the home no longer offers security for the loan. In short, the house is worth less or an amount equal to the loan.It’s a condition we’ve all heard called ‘being upside down’ in the house.
In those circumstances it offers little or no security to the lender and little motivation for the homeowner to continue payments particularly if the payments have taken a severe jump upwards.
It is also true, however, that every homeowner occupied house is also a home. A home for family, children, grandchildren and the legacy for many of their first personally owned home. Ten’s of thousands of foreclosures means ten’s of thousands of family without their own home.
In a bill proposed and created by Senate Banking Committee Chairman, and former presidential candidate, Chris Dodd and the panels senior Republican, Richard Shelby, The Federal Housing Administration would help renegoiate the loans on a one-time basis.
Until now Shelby had assured the committee he believed the White House would back the bill as an emergency measure to stimulate the economy and keep ten’s of thousands of Americans in their homes. Yesterday the White House announced it’s opposition to the partial funding sources for the program, Fannie Mae and Freddie Mac.
The Administration also opposed other aspects of the legislation which would strengthen oversight of Fannie Mae and Freddie Mac, create a $4 billion dollar fund for the purchase and rehabilitation of vacant, foreclosed properties and create a $8000 tax break to some first time homebuyers.
This bill has been overwhelmingly supported by a bi-partisan majority as it impacts every district in the nation. It is expected to override any veto by George W. Bush.
The question remains, however, why the Administration would oppose a bill that is obviously going to pass, a bill that benefits millions of Americans, a bill that help moderate a housing crisis? The only answer many have reached is that, again, this Administration is putting theoretical policy concepts ahead of actual reality.
Action item: Write your Congressperson and Senators to shore up the popular support for this measure.
(Disclosure: After spending 28 years in the real estate business, including 10 years in the mortgage business, I can attest that it was a complicated series of specific programs, and interlocking ‘professional’ culture changes that created this crisis. )