Real Estate Investing News

Frank Seeks TARP Funds for Foreclosures

House Financial Services Committee Chairman Barney Frank believes that more of the TARP funds should be going to fight the ever-rising tide of foreclosures:

The federal government should devote at least $50 billion of the remaining financial-rescue funds toward a plan to prevent foreclosures, said House Financial Services Committee Chairman Barney Frank Friday.

Wrapping up a week of efforts by legislators and businesses to stake claims on the Troubled Asset Relief Program and the proposed stimulus package, Mr. Frank said he plans to lay out a series of restrictions on the remaining $350 billion in TARP in a bill the House could vote on as soon as next week.
eanwhile, an industry coalition is lobbying for a tax break that would allow companies to renegotiate troubled debt without incurring corporate income taxes, a potential windfall for many companies, including private-equity firms.

Mr. Frank said his plan would prevent banks from using government money to buy healthy banks and impose tougher executive-compensation restrictions for new recipients of TARP funds. He is also proposing a permanent increase in the Federal Deposit Insurance Corp.’s insurance limit on deposit accounts to $250,000.

Paulson Rejects Government Bailout Plans

If you’ve been hoping that Treasury Secretary Henry Paulson is going to start paying your mortgage out of the kindness of his heart, think again:

Treasury Secretary Henry Paulson said Thursday that many proposals being put forward to deal with the housing slump would do more harm than good.
While he still believes that the housing problem remains the biggest downside risk to the economy, Paulson said the issue needed to be put in perspective. He said 93 percent of all mortgages are being paid on time and that less than 2 percent are in foreclosure.

“So while some in Washington are proposing big interventions, most of the proposals I’ve seen would do more harm than good,” the secretary said in remarks prepared for delivery Thursday night before the Economic Club of Chicago.

At the risk of sounding very Grinch-like, with a cold, shriveled heart, I have to say that I completely agree. With the media beating it’s doom and gloom drum as hard as it can, it’s easy to forget that amidst all the foreclosure talk we’re still only really talking about a tiny, tiny fraction of households and mortgages out there.

Bailout plans may be good for short-term pops in the stock market, but by and large they’re pretty much completely ineffective and more window dressing than anything. Until we get a widespread correction in prices and more transparency as far as the worst being behind us on the lender/debt side of things, any bailout plan that’ll be proposed is pretty much peeing in the wind.

Home Foreclosures Hit Record High

Not really a surprise for anyone that’s been paying even half-attention, but the third quarter numbers for foreclosures in the US don’t exactly paint a pretty picture:

The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.

The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said.

All signs point to things getting worse before they get better, so expect the next few quarters to continue to set more “record highs”.

News like this probably bolsters the arguments that mortgage bailout plans are necessary to keep the overall economy from sliding into a recession, but plenty of folks believe that attempts to stem the forecoslure tide are just sticking your finger in the dam.

I’m still a bit baffled that people seem to believe that we can have a wild speculative run-up in home prices throughout much of the country, reap those benefits (whee, money), yet somehow avoid the inevitable consequences when the correction comes (i.e. lots and lots of foreclosures).

Five Year Mortgage Rate Freeze Plan Finalized

It looks like the writing is on the wall, as far as the knee-jerk mortgage rate freeze plan becoming a reality. Some highlights include:

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — as a way to make sure that the break is not granted to real estate speculators.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

Call me cynical, but I can’t help but view plans like this as political posturing, plain and simple. There are always going to be exceptions to the rule, but I’d hazard a guess that at least 50% of the people facing foreclosure due to ARMs resetting are also up to their eyeballs in consumer debt, and that the possibility of foreclosure isn’t a result of predatory lending but of their own inability to avoid the lure of using credit to spend money they don’t have.

Giving someone who can’t balance their spending or don’t have enough common sense not to buy a house they can’t afford a five year reprieve isn’t going to accomplish much in the end. And putting any faith in the fact that prices will rebound and shoot upwards again, producing enough equity in their home to refinance with ease is, at the very least, wildly optimistic, if not out and out crazy talk.