FHA Mortgage Guide

As of this writing, there’s new movement on Capitol Hill regarding help for beleaguered mortgage borrowers.

In basic terms, what’s happening is that Republican efforts to block mortgage assistance are coming to an end. Worries about the “moral hazard” of helping people who made poor choices went out the window with the $30-billion effort to prevent a Bear Stearns bankruptcy. Also, it’s been obvious for months that the FHASecure program has not produced relief, the Hope Now project has not reduced mortgage levels and Republicans are getting creamed for obstructionist tactics and favoring Wall Street. The sudden resignation of HUD Secretary Alphonso Jackson also created another opening.

The final legislation is not complete, but it looks like there will be $10 billion for the states to make loans, $180 to $200 million for mortgage counseling and the real biggie — several hundred billion to convert toxic mortgages into fixed-rate loans with decent interest levels — but only if lenders will take a loss. The lender loss, however, will be 15 percent of the mortgage amount, perhaps a better deal than the losses they would otherwise face.

In addition, a credit of up to $7,000 will be available to those who buy foreclosed properties within a relatively-short time period.

Democrats argue that the same logic which made saving Bear Stearns worthwhile is the same logic that makes saving neighborhood homes worthwhile. Since there are more voters in neighborhoods than on Wall Street, the political math is compelling. Besides, as Supreme Court Justice Anthony Scalia, a man of principal and consistency has told us, “you can make an exception without the sky falling.”

Oh, and what was the reason for preventing the bankruptcy of Bear Stearns? Here’s what Mr. Bernanke had to say today:

“On March 13,” said Fed Chairman Ben Bernanke, “Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available. This news raised difficult questions of public policy. Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company. Our financial system is extremely complex and interconnected, and Bear Stearns participated extensively in a range of critical markets. With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. The company’s failure could also have cast doubt on the financial positions of some of Bear Stearns’ thousands of counterparties and perhaps of companies with similar businesses. Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain. Moreover, the adverse effects would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability. To prevent a disorderly failure of Bear Stearns and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, the Federal Reserve, in close consultation with the Treasury Department, agreed to provide funding to Bear Stearns through JPMorgan Chase. Over the following weekend, JPMorgan Chase agreed to purchase Bear Stearns and assumed Bear’s financial obligations.”

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This entry was posted on Thursday, April 3rd, 2008 at 8:20 am and is filed under FHA. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.