Federal Government’s Role in the Foreclosure Crisis

Posted on October 11th, 2011

The US housing market continues to struggle particularly because of the huge volume of foreclosed properties clogging the market pipeline, dragging both home sales activity and home prices down. To make matters worse, the high unemployment rate and the lack of consumer confidence have made it impossible for the said market to sustain a recovery.

Although the economic recession, a main contributor to the foreclosure crisis, was supposedly over last 2009, Americans are still feeling its effects and most believe it is the federal government’s fault.

Since the subprime mortgage market collapse, the federal government has launched program after program revolving around foreclosure prevention, one of which is the Home Affordable Modification Program. The said program has helped about 691,000 distressed borrowers to date but obviously, it is not enough.

The involvement of the federal government in housing has proved to be unproductive and has always been questioned. There have been reports that it might revamp its housing finance policies in order to finally put a limit on the extent of its participation and hand over the industry to the private sector.

A Positive Role

Of course, it is important that such withdrawal from the industry should not be done in such haphazard and sudden manner. In the United States, majority of new mortgage loans are backed by the government sponsored enterprises Fannie Mae and Freddie Mac and it would adversely impact homeownership rate if the feds decide to move too quickly. As it is, homeownership continues to decline in most states.

It would certainly be a good idea for the feds to consider focusing on how to help distressed borrowers refinance in order to reduce the number of homes entering the foreclosure market. Add this assistance to the efforts being made to boost employment and the national economy; it is possible for the housing woes to be solved earlier than forecasted.

Of course, there is always the importance of making market conditions attractive for home buyers and investors so they could take advantage of the cheap homes — perhaps the only silver lining in this otherwise gloomy scenario.

ForeclosureConnections.com – where successful foreclosure investing decisions are made.

Filed under Federal Government, Foreclosure Crisis, Foreclosure Homes, Foreclosure News, bank foreclosure, crisis, foreclosure, government, housing crisis | No Comments »

Fannie, Freddie Bailout Tab Just Keeps Growing

Posted on October 22nd, 2010

Regulators of housing finance giants Fannie Mae and Freddie Mac are now saying that both companies may need as much as $19 billion more from taxpayers in the next three years. So far the government (read: taxpayers) has shelled out $135 billion to help bailout Fannie and Freddie since the housing crash, when both were taken in government conservatorship in September 2008.

“Today’s projections show that, in the most likely economic scenario, nearly 90% of the losses at Fannie Mae and Freddie Mac are already behind us,” said Jeffrey Goldstein, under-secretary for domestic finance at the Treasury Department, as quoted in a Wall Street Journal piece.

Yet if things get worse in the economy over the next three years, the regulators are saying the total taxpayer bill for Fannie and Freddie could grow to roughly $363 billion.

That same Wall Street Journal article by Nick Timiraos made some statements that make the whole situation even more maddening.

[These estimates] don’t include the 10% dividend payments that the firms must make every quarter to the U.S. government… The Treasury has agreed to inject unlimited amounts of cash to keep the firms afloat…As the firms burn through their credit losses, they will still have to ask Treasury for money to make its dividend payments.

So Fannie and Freddie are borrowing money from the government to repay the government?!?! Does this sound ridiculous to anyone?

And then:

The Obama administration has promised to deliver a plan to revamp the firms, and the broader U.S. housing-finance infrastructure, by January 2011. The dividend payments on those Treasury investments are likely to prevent Fannie and Freddie from ever returning to profitability.

So by making Fannie and Freddie, pay us back for lending them money, we prevent them ever making money to pay us back. What?!?!

We have certainly needed both of these companies to get us through the worst of the housing crisis, supplying the mortgage loans for most Americans in the past year,  but we can only hope the Obama plans for them will do something to correct this crazy cash conundrum that has been created by the bailout.

Filed under Home Buying, Mortgage, Mortgage News, housing crisis | No Comments »