Take your pick [bailout, foreclosure, bankruptcy, loan modification]
Late last month, I wondered when the government was going to get around to helping the financially troubled homeowner while spending big dollars bailing out banks and other financial institutions. After all, the Hope Now and some other programs offered by several banks have been limited in nature and dismal in overall success since all of this stuff is not making much of a dent in the foreclosure problem.
Now ordinarily, I believe that market forces should sort everything out but since there has been so much government action in so many other places, I think the government may as well do more to help troubled borrowers avoid foreclosure which is one of the root causes of the myriad of problems that we face.
Think about this, Congress is arguing whether or not to loan (or give) GM, Ford and Chrysler $25 Billion and Nancy Pelosi and others want to make sure the money is used to invest in new technology rather than keep their doors open for another few months and avoid putting several million people out of work. (Incidentally, in my opinion, big strings should certainly be attached to this bailout.)
So anyway, within a couple of days of Hank Paulson dismissing the idea of using any of the $700 Billion bailout for homeowners in trouble, Sheila Bair at the FDIC did an end around and offered an aggressive loan modification program. Learn more by reading, FDIC, Treasury clash on anti-foreclosure plan.
The FDIC proposal:
"Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow (around 4 percent of seriously delinquent loans each month). It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.
We envision that the program can be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we expect that about half can be modified, resulting in some 2.2 million loan modifications under the plan."
Considering the Trillions of Dollars already being tossed around, this just seems like chump change to me.