“The leaders of the U.S. Senate Banking Committee announced agreement on housing legislation that creates a voluntary program to stem foreclosures, ending a standoff over whether taxpayer funds should be used.
Senators Christopher Dodd, the panel’s chairman, and Richard Shelby, its top Republican, agreed to pay for the program through an affordable housing fund financed by Fannie Mae and Freddie Mac, Dodd said today in a conference call with reporters.” (Bloomberg)
“Initial details were sketchy, although likely to be revealed soon, since the senators said the committee would consider the legislation on Tuesday. The agreement would provide tighter regulation of the government-sponsored lenders, Fannie Mae and Freddie Mac.
Another unknown, at least as of late Monday afternoon, was whether President Bush was on board for the deal. The president has resisted legislation that, in his view, would bail out greedy lenders and market “speculators” at the taxpayers’ expense.” (NYT)
∙ Dodd, Shelby Reach Agreement on Anti-Foreclosure Bill [Bloomberg]
∙ Leading Senators Agree on Housing Crisis Aid [New York Times]
∙ JustQuotes: Barney Frank’s Housing Bill Reduced To Political Rubble? [SocketSite]
The whole thing sounds sketchy to me.
I LOVE paying for it with an “affordable housing fund”.
But it’s financed by the GSEs, which will be passed on to the home buyers: wouldn’t that make housing LESS affordable?
who knows what will happen. every week it seems we get another plan for how to “save” housing. clearly the attempts mostly seem to be centered around keeping housing prices high. whether or not it will work? we can never know.
although Dodd states that no taxpayer money will be used, many of us worry about what happens if the the insurance fund runs out of money or if Fannie/Freddie go BK. then the taxpayer is clearly at risk. Almost nobody knows what Fannie/Freddie’s financial status is. it took many years after the fact to try to figure out their finances in the boom years, and now we’re turning into bust years. Much of their financial statement is incomprehensible even to Fannie/Freddie itself.
the other concern: the big reason housing is failing now is because people (in general) simply could no longer afford higher prices. plans like these may hold housing prices where they are, but seem unlikely to get prices to rise again (on a nationwide basis). and the cascade of problems we’ve seen began partially because housing prices stopped rising.
as always, the devil is in the details. I will eagerly await the details.
Saving housing would take trillions and probably isn’t possible. Saving many homeowners who don’t want to move from foreclosure might only take some principal reduction deals which make sense now that we all know the high prices that people were paying were an illusion. The details are important, but if viewed through some strange circus fun house mirror they won’t end up mattering.
The correction is upon us. That isn’t in question and isn’t stoppable. The question is what the impact will be.
Saving many homeowners who don’t want to move from foreclosure might only take some principal reduction deals which make sense now that we all know the high prices that people were paying were an illusion.
Mole Man,
Doing this is morally irresponsible.
Say the year is 2005.
Joe Sixpack wants to buy a house. He can afford a 400K house with a 30-year 20% down mortgage.
Now, Bob Anyone wants a house too, but he can only afford 300K with the 30-year 20% down. He does a 0% down / negative amortization which allow him to borrow 450K and overbids Joe’s offer by 50K.
Joe is priced out because Bob is ready to take a lot of extra risk.
Now the year is 2008.
The 450K house is worth only 350K. Bob owes 520K and can’t pay the mortgage that just reset.
Do you bail out Bob? Reduce his mortgage to something he can afford? What about Joe who kept on renting? Do you compensate him for an unfair treatment? He’s the one who kept his cool during the frenzy and he’s getting nothing in return.
I say just kick Bob out and sell the house in foreclosure to Joe.
Chances are: that’s what will happen anyway.
Saving many homeowners who don’t want to move from foreclosure might only take some principal reduction deals which make sense now that we all know the high prices that people were paying were an illusion.
Mole Man,
Doing this is morally irresponsible.
Say the year is 2005.
Joe Sixpack wants to buy a house. He can afford a 400K house with a 30-year 20% down mortgage.
Now, Bob Anyone wants a house too, but he can only afford 300K with the 30-year 20% down. He does a 0% down / negative amortization which allow him to borrow 450K and overbids Joe’s offer by 50K.
Joe is priced out because Bob is ready to take a lot of extra risk.
Now the year is 2008.
The 450K house is worth only 350K. Bob owes 520K and can’t pay the mortgage that just reset.
Do you bail out Bob? Reduce his mortgage to something he can afford? What about Joe who kept on renting? Do you compensate him for an unfair treatment? He’s the one who kept his cool during the frenzy and he’s getting nothing in return.
I say just kick Bob out and sell the house in foreclosure to Joe.
Chances are: that’s what will happen anyway.
Bob Anyone buys another house and walks away from his old digs. He also makes out with a new faucet, lightings, and other fixtures that he installed/purchased with a HELOC. Those fixtures fetch a tidy sum on the market, which he uses for a downpayment on his new home.
The old house goes into foreclosure, but the bank still wants 520k for the house to cover their loss.
Ok, eventually the 520k may go down, but Joe Sixpack has two new Toddler Joe’s since 2005 so he needs a house or bigger space pretty bad. Still, he can’t afford the house since the bank still wants too much money, and Bob Anyone’s neighbors Dick Mortgage and Patty Realtor won’t budge with their home price even though their ARMs will reset next month, because real estate only goes up, never down.
So Joe Sixpack has to move to a bigger apartment in a worse part of town (since rents have gone up). One night coming back from work Joe gets shot in the head by his neighbors Mike Crackhead and Johnny Carjacker.
THE END