In the wake of the Wall Street bailout, proponents of trickle-down economics like Treasury Secretary Henry Paulson stand firm on the recent plan to help banks as the first step to helping the housing crisis. For many homeowners in or on the brink of foreclosure, loan availability in the future is not their immediate concern. A groundswell of support is rising to offer immediate help to homeowners.
The "housing crisis" is multifaceted, with dimensions that include high foreclosure rates, plummeting housing values, high housing inventories, and low sales. Many homeowners, locked in pricey loans that consume too much of their budget, find themselves unable to pay their mortgages. These mortgages often were made in the heyday of subprime loans, from 2003-2006, when borrowers were offered "teaser rates" that have expired. The borrower may have exaggerated his income when he took out the loan, in expectation that both his income and housing prices would continue to rise. Though some might say that potentially losing a home is fair punishment for lying on a loan application, the realty is that until recently, both housing inflation and wage progression were reasonable expectations. Not everyone lied. Critics of the bailout have asserted that falling home prices are the ultimate problem.
In this election year, both political candidates are now calling for help for homeowners. McCain's suggestion, thrown out during a debate, that the government directly buy loans, was criticized because lenders could get full value on overpriced loans. As recently noted in this blog (HOPE is on the Way), the government offers Hope for Homeowners, which offers FHA backing on refinanced loans. This program is voluntary for lenders - which means lenders could choose not to participate, especially as their own stock of foreclosed homes dwindle.
Suggestions for helping homeowners include: making lender participation in programs like Hope for Home owners mandatory, allowing judges to rewrite loans for bankrupt homeowners, offering substantial (i.e., $20,000 tax credits), and having the government refinance mortgages that exceed the value of the home.
The current situation, as well as the proposed outlook for 2009 - new foreclosures in excess of 2.1 million - necessitates some creative thinking for the champions of Main Street.
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