Okay, it seems as though Capitol Hill has made a breakthrough and the leaders in Washington may have reached a deal on the Wall Street Bailout.  The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors.  This will help lenders keep credit lines open, staving off a slow economy.  The government would later try to sell the discounted loan packages at the best possible price.  There is an allocation of funds to encourage holders of distressed mortgage-back securities to keep the securities and buy government insurance to cover defaults.  Legislation would place limits on severance packages for executives of companies that are benefiting from the rescue plan.  Also, the government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies’ future profits.

How the Bailout May Help Homeowners

It seems as though all roads may be leading to a temporary halt in foreclosures for the bad debt purchased by the government during this bailout.  When the government stepped in for Indy Mac, there was a halt in foreclosures due to the review of portfolios that had to be done.  Foreclosures are extremely expensive and a huge financial hardship for homeowners. IndyMac had 742,000 mortgages in its portfolio, 60,000 of which were 60 days delinquent or at some stage of foreclosure. One of the first actions the FDIC took after stepping in to pick up IndyMac’s pieces was to declare an immediate halt to all foreclosure actions, pending a portfoliowide review.  We may see the same actions being done for struggling homeowners across the country.  The lowering of monthly payments will probably be in bulk.  According to the Seattle Times, After an initial review of the 60,000 late borrowers in the IndyMac portfolio, FDIC deemed roughly 40,000 customers eligible for the modification program.  Modification terms include rate reductions, the lengthening of payback terms, rescheduling unpaid principal and interest, rate caps, and other techniques.

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We still do not have any concrete information on the “bailout of Wall Street”.  I’ve heard elected officials many times stress how important it is to make sure the bill includes provisions for “main street”.  I believe they have coined this term to make taxpayers feel better about getting the short end of the stick.  From where I sit, there is no good way to protect “main street”.  Here is why:

1. If you have paid your mortgage on time, you will pay for this bailout.  It has been said that you will benefit by having a stronger economy due to the credit freezes needed to run our nation being lifted.  My concern is that we have not seen any preliminary allocations of funds to know how much is being allocated to pad pockets versus stave off future bank failures and increase lending between banks.

2. If you are facing foreclosure are you are in default of your loan your mortgagee will become the U.S. Government.  Why do so many people believe that the Government is always a friend and will protect their people so much better than the free market?  If you qualify for a loan modification or forebearance, how many pages will you need to sign your life away with? If portion of your current mortgage amount can not be forgiven, will you then be subject to a lifetime of wage garnishments, foregoing any future tax refunds, lottery winning, inheritances, etc…  Okay, I’m being sarcastic, but my point is, making Government bigger is not always the best thing for the people or the best answer.

Why Loan Modifications Don’t Always Work

More than 40 percent of all subprime ARM foreclosures that occurred during the three months ending September 30 involved owners who had already worked out some kind of deal with their lenders, according to a report from the Mortgage Bankers Association (MBA).  CNN Money has reported that although Hope Now, the government-led alliance of lenders, mortgage servicers, investors and community advocacy groups, says it helped 545,000 subprime borrowers during the second half of 2007, 33% more people actually lost their homes than in the first six months of the year.  The only thing that seems to work reported by the Neighborhood Assistance Corporation of America, NACA is lowering the monthly mortgage amount. 

In short, people will continue to walk away from their homes.  How do you lower a mortgage payment without lowering the amount of the debt?  I think that is the $700 billion dollar question.

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What is H.R. 6694?  H.R. 6694 is the FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008.  It has been implemented to To revise the requirements for seller-financed downpayments for mortgages for single-family housing insured by the Secretary of Housing and Urban Development under title II of the National Housing Act and to authorize risk-based insurance premiums for certain mortgagors under such mortgages.  Basically, this will allow downpayment programs to continue indefinitely.  Why is this important?

Why this Bill is Important

President Bush signed H.R. 3221 Housing and Economic Recovery Act of 2008 into law on July 30, 2008. Included in this bill was the elimination of downpayment assistance (DPA) programs.  Borrowers who are credit approved prior to October 1, 2008 can receive downpayment assistance and have their loan FHA-insured.

Charlotte Area Builders

Many of Charlotte North Carolina home builders still use downpayment assistance.  It is a great tool to help first time homebuyers achieve their goals of owning a home.  Especially now, with more inventory on the market than demand calls for, we need a way to ensure home buyers still have ways to purchasing a home.

Save Downpayment Assistance

Save Downpayment Assistance!  Contact your elected officials and urge them to support H.R. 6694.  Allow downpayment assistance to endure. Failure to act now will can eliminate downpayment assistance as we know it forever.  Please write your senators and your House of Representatives and let them know how important it is to pass H.R. 6694 by October 1, 2008.  Allow our housing market to try and recover with the aide of willing and able buyers buying homes for sale.

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Government Bailout of Invest in America. what it means for Charlotte Real Estate

Uncle Sam will be the holder of all of America’s troubled mortgages if this highly debated $700 billion dollar “bailout” passes. Treasury Secretary Henry Paulson announced the framework of the plan on last Friday by saying  “The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy,”  The chief executive of the ANZ Bank, Mike Smith, says there will be a depression in the US if Congress does not pass the US government’s financial rescue package.

President Bush Makes Appeal to Americans

President Bush stated Credit markets have frozen and families and businesses have found it harder to borrow money. We’re in the midst of a serious financial crisis,” “Without immediate action by Congress, America could slip into a financial panic,” Mr. Bush said.  President Bush invited Senator Obama and Senator McCain to the White House to work on a compromise financial rescue plan.  Both men agreed to attend.  Most importantly to the average American, President Bush said millions of American jobs would be lost, with credit choked off for those who remained standing amid the carnage.  The bailout plan is aimed at bailing out more than Wall Street.

Invest in America?

According to Jim Cramer of CNBC’s Mad Money, Treasury Secretary of the State Henry Paulson is doing a bad job of selling the bailout plan.  Since this plan is about keeping Americans in their homes, it should be called “invest in America”, and not be referred to a “bailout” of Wall Street. “It’s about cash in the ATM machine,” he said, and keeping the problems of Wall Street from spilling over onto Main Street.  Cramer stated that unemployment could skyrocket to 20%, if not 30%.  Cramer is a big supporter of the rescue plan.

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As expected, the Government is expected to take over Fannie Mae and Freddie Mac this weekend due to reports of billions of dollars in loss.  CEO Daniel Mudd of Fannie Mae and CEO Richard Syron of Freddie Mac will be excused from their duties.  There is a potential that this take over could cost taxpayers billions of dollars. 

Fannie Mae and Freddie Mac Losses a Combined 3.1 Billion

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

The Congressional Budget Office has stated that this intervention could cost taxpayers $25 billion dollars.  

Record 9 Percent in Foreclosure

The Mortgage Bankers Association reported on Friday that more than 4 million American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June.  This is a record 9 percent.

Freddie Mac and Fannie Mae together hold or guarantee $5 trillion in mortgages.  This is almost half the nation’s total.

On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank and let us not forget the Government takeover of investment bank Bear Stearns by JP Morgan Chase.

How it Affects Charlotte Real Estate

If you would like information on “homes to watch” that are slated to be released for public sale prior to the property being entered into the public market, register here.

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