According to the New York Times, Congress is suddenly keen to get a homeowner bailout program in place, and made a rare bipartisan show of a joint news conference, with the hope of tabling the bill as soon as noon Wednesday.
At a minimum, the bipartisan package was expected to include up to $200 million to expand counseling programs for homeowners at risk of foreclosure, $10 billion in tax-exempt bonds for local housing authorities to refinance subprime loans, $4 billion in grants for local governments to buy foreclosed properties and a $15,000 tax credit for purchasers of foreclosed homes or newly built homes that have been sitting vacant…..
Both the Senate Banking Committee and the House Financial Services Committee have been working on bills that would allow the Federal Housing Administration to insure $300 billion to $400 billion in additional mortgages, with an upfront cost of $10 billion.
As the Times notes, despite the big numbers being thrown about, it isn’t at all clear how many will be helped. First, any plan would have tough approval requirements and require borrowers to demonstrate the ability to repay. Second, the servicers would have to write down mortgage balances voluntarily and then the loan could be refinanced through the FHA (although the Democrats are trying to revive proposed changes to the bankruptcy laws that would allow judges to write down mortgages to the value of the collateral).
Moreover, even die-hard liberals are voicing reservations:
Critics warn that taxpayers could get stuck with a huge bill if large numbers of borrowers defaulted yet again.
That risk is especially great in places like Las Vegas and Phoenix, where home prices are falling fast, said Dean Baker, the co-director at the Center for Economic Policy Research.
“In the bubble-inflated markets, you still have a long way to go down. That’s one of the things that I don’t think people have fully appreciated,” he said.
What got us in this mess in the first place is that America has the most heavily subsidized housing market in the world. Is more of the same a wise solution?