With all the buzz this past month surrounding the stimulus plan in front of Congress, (the House passed the bill this morning without GOP support and the Senate awaits the vote of Senator Sherrod Brown of Ohio to cast the necessary 60 votes), talk of how to help those who have been foreclosed upon has been noticeably muted.
Today, however, it was announced that GSEs Fannie Mae and Freddie Mac, along with major banks JP Morgan Chase & CO., Morgan Stanley and Bank of American said that they will be halting all foreclosures until March 6th.
Meanwhile, the nation anxiously awaits President Obama’s plan on how to best spend $50 billion to prevent foreclosures. Treasury Secretary Timothy Geithner gave a brief outline of a 3 point plan to help restore the credit markets on Tuesday, which was rejected by Wall Street.
The original TARP plan was supposed to provide liquidity and get the largest banks lending again so that mortgage rates could come down and those with adjustable rate mortgages could renegotiate their terms, but those loans proved only a drop in the bucket for banks.
The troubling fact is the sheer amount of mortgage backed securities; if banks sold them at market value, they’d go under, if the government bought them at face value, the banks would be nationalized.
Though details are sketchy, President Obama’s plan will have to include some terms on how banks and mortgage holders will negotiate with individual home owners in duress so that at least some money can be recouped and some kind of price floor can occur.
“A Democratic Senate aide said the plan is likely to include heft payments designed to encourage the lending industry to lower mortgage rates or reduce the total principal amount owed by borrowers. The idea has become attractive to Obama officials, the aide said Friday, because it is expected to be far less expensive than having the government buy up loans out of mortgage-linked securities.”
Of course this is exactly what happened with the TARP funds this fall, so we’ll have to see how that works out.
Whatever happens, some kind of loan modification program is likely to be rolled out to keep people in their homes and keep banks receiving mortgage payments. Maybe then, home prices will not stoop so low that they will wipe out entire communities.
Fingers crossed?
