Sokelo
October 4th, 2008, 10:57 AM
Financial industry bailout offers only vague promises
By Alan Zibel and Adrian Sainz
THE ASSOCIATED PRESS
Tucson, Arizona | Published: 10.03.2008
WASHINGTON — The harsh reality for Murielle Montes and hundreds of thousands of homeowners who are behind on their mortgages is this: A $700 billion bailout of the financial industry will probably do little to help them avoid foreclosure.
Today, House lawmakers are scheduled to vote on the package, amid intense lobbying from President Bush and industry groups who say the measure is crucial for stabilizing the staggering U.S. economy.
But when it comes to foreclosures, the Treasury Department is only directed to "maximize assistance for homeowners" and write up monthly progress reports.
That's not enough to help Montes, a 46-year-old nursing assistant, who faces foreclosure on the house she bought in Brockton, Mass., three years ago.
She has been working with a housing counselor to modify her loan since February, but hasn't had any luck and received a foreclosure notice in August. Meanwhile, the value of her house has sunk from her purchase price of $330,000 to $250,000, she said.
"Where are am I going to sleep? Where are my kids going to go?" asked Montes.
But in many cases, the federal government's hands could be tied — either because the mortgages are pooled into securities sold in pieces to other investors, or because homeowners don't have the financial resources to stay in the property.
Within 12 to 18 months, roughly 40 percent of U.S. borrowers, or 20 million households, will owe more on their mortgages than their homes are worth, according to Deutsche Bank. The problem will be most severe in California, Nevada, Florida and Arizona, where housing prices soared and reckless lending practices were rampant during the housing boom.
That's almost the same number of American households that are spending 30 percent or more of their income on housing, according to recent U.S. Census data. With little cash cushion or home equity, the slightest financial problem — an increase in gas prices, medical bills, or car repair — can put a family behind on their mortgage and into the realm of foreclosure.
"Only a small portion of problem loans" can be saved, said Deutsche Bank analyst Karen Weaver. "In some cases the lender is better off just taking back the property and just selling it."
As lawmakers debate the massive rescue plan, many consumer advocates are upset that it would benefit the same Wall Street banks that provided funding for the explosion of subprime and other exotic loans, while making only vague promises to assist homeowners.
"It has been very difficult to get (the government) to put together a mandatory, comprehensive, immediate plan to rescue homeowners in the same way that they've put together a massive plan to rescue those who got us in this crisis in the first place," said John Taylor, president of the National Community Reinvestment Coalition, a consumer group in Washington.
On Wednesday, the federal government kicked off a program that aims to prevent foreclosures by letting an estimated 400,000 troubled homeowners swap their mortgages for more affordable loans insured by the Federal Housing Administration.
But the program is expected to fall short of what is needed. And lenders, rather than borrowers, will decide whether to participate in the program, which requires them to take a loss on the initial loan.
Even if the government does push aggressive efforts to modify troubled loans, it could take months to put such a sweeping effort in place.
Still, some housing advocates believe borrowers will have better luck with the government than with private mortgage investors.
Consumer groups say the lending industry was ill-prepared for a sharp rise in foreclosures. And they blast the industry for relying on short-term repayment plans, rather than reducing the principal balance or lowering the interest rate.
The Hope Now alliance, a Bush administration-backed mortgage industry group, said Thursday that the industry has performed some form of workout on 2.3 million loans since July 2007. About one-third of those were permanent modifications.
But on Monday, a group of state banking and law enforcement officials released a report that said nearly 80 percent of borrowers with subprime loans were not on track for assistance to avoid foreclosure as of May.
By Alan Zibel and Adrian Sainz
THE ASSOCIATED PRESS
Tucson, Arizona | Published: 10.03.2008
WASHINGTON — The harsh reality for Murielle Montes and hundreds of thousands of homeowners who are behind on their mortgages is this: A $700 billion bailout of the financial industry will probably do little to help them avoid foreclosure.
Today, House lawmakers are scheduled to vote on the package, amid intense lobbying from President Bush and industry groups who say the measure is crucial for stabilizing the staggering U.S. economy.
But when it comes to foreclosures, the Treasury Department is only directed to "maximize assistance for homeowners" and write up monthly progress reports.
That's not enough to help Montes, a 46-year-old nursing assistant, who faces foreclosure on the house she bought in Brockton, Mass., three years ago.
She has been working with a housing counselor to modify her loan since February, but hasn't had any luck and received a foreclosure notice in August. Meanwhile, the value of her house has sunk from her purchase price of $330,000 to $250,000, she said.
"Where are am I going to sleep? Where are my kids going to go?" asked Montes.
But in many cases, the federal government's hands could be tied — either because the mortgages are pooled into securities sold in pieces to other investors, or because homeowners don't have the financial resources to stay in the property.
Within 12 to 18 months, roughly 40 percent of U.S. borrowers, or 20 million households, will owe more on their mortgages than their homes are worth, according to Deutsche Bank. The problem will be most severe in California, Nevada, Florida and Arizona, where housing prices soared and reckless lending practices were rampant during the housing boom.
That's almost the same number of American households that are spending 30 percent or more of their income on housing, according to recent U.S. Census data. With little cash cushion or home equity, the slightest financial problem — an increase in gas prices, medical bills, or car repair — can put a family behind on their mortgage and into the realm of foreclosure.
"Only a small portion of problem loans" can be saved, said Deutsche Bank analyst Karen Weaver. "In some cases the lender is better off just taking back the property and just selling it."
As lawmakers debate the massive rescue plan, many consumer advocates are upset that it would benefit the same Wall Street banks that provided funding for the explosion of subprime and other exotic loans, while making only vague promises to assist homeowners.
"It has been very difficult to get (the government) to put together a mandatory, comprehensive, immediate plan to rescue homeowners in the same way that they've put together a massive plan to rescue those who got us in this crisis in the first place," said John Taylor, president of the National Community Reinvestment Coalition, a consumer group in Washington.
On Wednesday, the federal government kicked off a program that aims to prevent foreclosures by letting an estimated 400,000 troubled homeowners swap their mortgages for more affordable loans insured by the Federal Housing Administration.
But the program is expected to fall short of what is needed. And lenders, rather than borrowers, will decide whether to participate in the program, which requires them to take a loss on the initial loan.
Even if the government does push aggressive efforts to modify troubled loans, it could take months to put such a sweeping effort in place.
Still, some housing advocates believe borrowers will have better luck with the government than with private mortgage investors.
Consumer groups say the lending industry was ill-prepared for a sharp rise in foreclosures. And they blast the industry for relying on short-term repayment plans, rather than reducing the principal balance or lowering the interest rate.
The Hope Now alliance, a Bush administration-backed mortgage industry group, said Thursday that the industry has performed some form of workout on 2.3 million loans since July 2007. About one-third of those were permanent modifications.
But on Monday, a group of state banking and law enforcement officials released a report that said nearly 80 percent of borrowers with subprime loans were not on track for assistance to avoid foreclosure as of May.