And Yet Another Economic Plan
November 18, 2008
Chairwoman Sheila Bair of the Federal Deposit Insurance Corporation has a plan for the government to partially insure lenders when they agree to modify troubled borrowers' loan terms. Chairwoman Bair wants the Bush administration to provide incentives for lenders to do as many as 2.2 million loan modifications. Under the FDIC proposal, the government would pay servicers $1000 for each loan modified and also agree to cover up to 50% of losses if a loan should re-default.. According to the FDIC's assumptions if one in three modified loans were to re-default, the plan would cost taxpayers $24.4 billion, but prevent 1.5 million foreclosures by the end of next year.
As I posted last week, the National Association of Realtors has its own four-point legislative plan to stimulate housing markets. Then there is the treasury department $700 billion plan approved by Congress and probably more in the works. Unfortunately, few of these proposals have yet been put into motion.
What is unique about this down cycle in the real estate marketplace is the creative financing that was created for the 21st century. A statistic that I heard stated that about 60% of seriously delinquent mortgages have been sold to investors in private-label mortgage-backed securities. Finding the actually holders of the partitioned mortgages and then getting them to agree to modifications has proved an almost insurmountable challenge.
The good news is that Fannie Mae and Freddie Mac have boosted their loan modifications to an average of 4,600 per month. About 92% of borrowers that Fannie and Freddie have worked with have been able to keep their homes.
If stabilizing the housing market is, as so many economists have claimed, the key to getting us out of this recession, then negotiations between underwater borrowers and the lenders/investors must take place.
Chairwoman Sheila Bair of the Federal Deposit Insurance Corporation has a plan for the government to partially insure lenders when they agree to modify troubled borrowers' loan terms. Chairwoman Bair wants the Bush administration to provide incentives for lenders to do as many as 2.2 million loan modifications. Under the FDIC proposal, the government would pay servicers $1000 for each loan modified and also agree to cover up to 50% of losses if a loan should re-default.. According to the FDIC's assumptions if one in three modified loans were to re-default, the plan would cost taxpayers $24.4 billion, but prevent 1.5 million foreclosures by the end of next year.
As I posted last week, the National Association of Realtors has its own four-point legislative plan to stimulate housing markets. Then there is the treasury department $700 billion plan approved by Congress and probably more in the works. Unfortunately, few of these proposals have yet been put into motion.
What is unique about this down cycle in the real estate marketplace is the creative financing that was created for the 21st century. A statistic that I heard stated that about 60% of seriously delinquent mortgages have been sold to investors in private-label mortgage-backed securities. Finding the actually holders of the partitioned mortgages and then getting them to agree to modifications has proved an almost insurmountable challenge.
The good news is that Fannie Mae and Freddie Mac have boosted their loan modifications to an average of 4,600 per month. About 92% of borrowers that Fannie and Freddie have worked with have been able to keep their homes.
If stabilizing the housing market is, as so many economists have claimed, the key to getting us out of this recession, then negotiations between underwater borrowers and the lenders/investors must take place.
posted by shirley harry at 2:18 PM
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