UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

July 28, 2009

CRASH TALK

Dean Baker - The folks in Washington have developed a series of complex mortgage modification schemes designed to keep people in their homes. President Bush put forward the first plan in the summer of 2007. It was entirely voluntary for lenders and came with no government money.

Last summer, Congress developed a package that committed up to $300 billion in loan guarantees to support modification efforts. Eight months after the plan went into effect, there had been less than 1,000 applications and only 52 completed modifications.

The most recent set of proposals came from President Obama in February. This plan focused more on giving incentives to servicers, offering them $1,000 to carry out a modification and an additional $1,000 for each year that the homeowner stayed in their home. This program also appears to be having a limited effect, as foreclosure rates hit a new high in the second quarter of this year.

There is an easier route. In recognition of the extraordinary situation created by the housing bubble and its collapse, Congress could approve a temporary change of the rules governing the foreclosure process. This change would give homeowners facing foreclosure the right to stay in their home paying the market rent for a substantial period of time (e.g. 7-10 years).

This change would have two effects. First, it would immediately give housing security to the millions of families facing foreclosure. If they like the house, the neighborhood, the schools for their kids, they would have the option to remain there for a substantial period of time.

Also by keeping homes occupied, this rule change can help to prevent the blight of foreclosures that has depressed property values in many areas. Vacant homes are often not maintained and can become havens for drug use and crime.

The other effect of a right to rent rule would be that it would give lenders substantially more incentive to modify a mortgage. Under the rule, the lender could still carry through with the foreclosure process and take possession of the house. The lender would also be free to resell the property, but the former homeowner would still have the option to remain as a tenant paying the market rent for the period specified in the law.

Since a house that comes with a renter attached is much less valuable to the bank, foreclosure would be a much less attractive option. Therefore lenders would have more incentive to try to work out a modification plan that allowed the homeowner to remain in their house as an owner.

Washington Post - Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.

The problem is that modifying mortgages is profitable to banks for only one set of distressed borrowers, while lenders are actually dealing with three very different types. Modification makes economic sense for a bank or other lender only if the borrower can't sustain payments without it yet will be able to keep up with new, more modest terms.

A second set are those who are likely to fall behind on their payments again even after receiving a modified loan and are likely to lose their homes one way or another. Lenders don't want to help these borrowers because waiting to foreclose can be costly.


Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them.. . .

Foreclosed homes continue to flood the market, forcing down home prices. That contributed to the unexpectedly large jump in new-home sales in June, reported yesterday by the Commerce Department.

NT Times - The long slide in housing prices is continuing to brake, figures released Tuesday indicate.

For the fourth consecutive month, there was modest improvement in May in the rate prices are falling, according to Standard & Poor's Case-Shiller Home Price Index, a closely watched measure of the market.

The index of 20 metropolitan areas had an annual decline of 17.1 percent in May from the same month in 2008, an improvement over April's 18.1 percent fall. . .

While the numbers are still grim, the important thing is the direction they are heading, Wells Fargo chief economist John E. Silvia said.

WTOP - Baskin-Robbins plans to open more than 35 new stores in the Washington area. . . The move is part of the ice cream company's new growth campaign that will try to increase its U.S. presence by creating new concepts like high-end dessert bars and drive-through shops. . . Ice cream production has remained fairly consistent over the past few years, said Cary Frye, vice president of regulatory affairs for the International Dairy Foods Association. The industry noticed an increase in both dollar sales and the volume of private label or "store brand" ice cream in 2008.

1 Comments:

Anonymous christopher said...

The USA economy are become a shame, and the government have not taken actions.

July 30, 2009 4:08 PM  

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