Speaker of the House Nancy Pelosi and House Finance committee chair Barney Frank are not happy with the way the first part of the $700B bailout fund has been spent. They are not inclined to release the second part until it goes more directly toward helping more Americans. Here is a recent article on that and here is an excerpt:
Frank has said he wants to revamp the Hope for Homeowners program in the Federal Housing Administration, which encourages lenders to forgive a portion of a homeowner’s debt in exchange for government insurance against default. Only 111 lenders applied to the program in October, its first month, and Frank has said he wants to lower the fees required for participation.
Frank also wants to fund a version of a plan promoted by Federal Deposit Insurance Corp. Chairman Sheila C. Bair to modify mortgages so that homeowners’ payments would amount to less than a third of their income. To entice lenders to go along with the plan, the federal government could insure some portion of the losses for borrowers who received help but still defaulted on their loans.
Some administration and Federal Reserve officials have raised questions about whether Bair’s proposal is the most effective way to help homeowners. In recent testimony before Congress, Federal Reserve Chairman Ben S. Bernanke said the government could end up paying vast amounts for homeowners whose home values have fallen substantially, suggesting that the underlying value of the property must also be considered, not just a borrower’s income level.
Paulson has said repeatedly that Bair’s plan and other proposals don’t do enough to distinguish between borrowers who could be helped to stay in their homes and those destined for default because their incomes and mortgages are hopelessly mismatched. Treasury officials also want to make sure President-elect Barack Obama is supportive before they adopt any plan.
December 28th, 2008 at 12:40 pm
The US government should refinance with a 5% government mortgage loan any homeowner that wants to keep their home. The banks holding the mortgages would receive an immediate cash infusion of the loan balance and the government would immediately start receiving mortgage payments from the homeowners. The banks did not keep their part of the bailout agreement and credit remains frozen, many ARM’s adjusted in October when the 6 month LIBOR was at the highest spike of the month. As a bonus, homeowners would not be pouring money down a black hole of interest and with the reduced payments would have money to spend and save thereby helping the economy. This is probably too simple a solution.