A Change in Approach Could Ease Housing Crisis

The United States is on track to experience a record number of foreclosures this year and could break another record in 2011, says columnist Ezra Klein, who lists four ideas housing industry experts are weighing as they attempt to jump-start a struggling market.

One is to revamp the Home Affordable Modification Program (HAMP) to empower housing counselors to modify mortgages using a standard formula, rather than leaving this task to the banks.

Second, banks could be given an incentive to participate in HAMP by empowering bankruptcy judges to modify the principal on mortgages.

Third, experts say that making mediation programs a mandatory requirement will give banks an opportunity to meet with every distressed home owner, look through the papers, consider the nuances of the situation, and make a good-faith effort to work out an arrangement.

And fourth, right-to-rent programs could be expanded for foreclosed home owners — like the one operated by Fannie Mae, which lets home owners rent their homes at fair-market value for five years.

Source: Washington Post, Ezra Klein (10/15/10) 

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Bankers Still Resisting Bankruptcy Cram downs

Banks are facing the inevitability of bankruptcy modification of mortgages.Banks have fought the notion of what is called a cramdown, saying that giving bankruptcy judges the ability to modify first mortgages will drive up borrowing costs for everyone.Supporters of cramdowns point out that modifications are no more costly than bankruptcies.To get the support of Citigroup, the only major bank that has spoken out in favor of bankruptcy modification, supporters of the proposal agreed to limit the cramdowns to existing mortgages. Banking industry lobbyists want to further limit the cramdowns to subprime loans taken out between 2002 and 2007. “To the extent that anything is ultimately passed, we would certainly want to limit that damage,” says Steve O’Connor, head lobbyist for the Mortgage Bankers Association.

 

 

 

 

Source: Business Week, Theo Francis