New Cramdown At FHA?

by Peter G. Miller
March 30th, 2008

As of Saturday morning it’s being widely reported that the Bush Administration is about to launch a new initiative to halt the massive wave of foreclosures being faced nationwide.

“The proposal,” says The Washington Post, ”is aimed at assisting borrowers who owe their banks more than their homes are worth because of plummeting prices, an issue at the heart of the nation’s housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.

“The plan is similar to elements in legislation proposed two weeks ago by Barney Frank (D-Mass.), who chairs the House Financial Services Committee, officials said. Administration officials said they believe they can accomplish some of the same goals through regulatory changes, though important details have yet to be nailed down.”

If the reports in the Post and elsewhere are true, then surely it is time to again allow bankruptcy courts to modify mortgage contracts for prime residences — just as they have the right to modify mortgage contracts for vacation properties.

As well, the obvious reason that we need a new plan is that the old ones — FHASecure and Hope Now — have had no material impact on foreclosure levels. Since August, when President Bush first announced the FHASecure proposal, it has been obvious that the plan wouldn’t work, couldn’t work and — despite absurd news releases to the contrary — never worked.

Hopefully the new effort will seriously improve the mortgage marketplace. The tragedy, of course, is that since August hundreds of thousands of people have gotten their first foreclosure notice.

For the full Post article, please see Bush Readies Mortgage Aid Plan.

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