If the government is going to buy up those bad mortgages…

Yesterday the Dow jumped 410 points on news that the federal government was talking about a plan to use taxpayer money to buy hundreds of billions of dollars of bad mortgages. According to the New York Times:

While details remain to be worked out, the plan is likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions. The proposal could result in the most direct commitment of taxpayer funds so far in the financial crisis that Fed and Treasury officials say is the worst they have ever seen.

I would like to pass on some suggestions from someone I know who has been trying to help people in danger of losing their homes through foreclosure. Many of these mortgages are bad (the borrower cannot make the payments) not because the borrower bought a more expensive house than they could afford but because the terms of the loan were so unfavorable. If these mortgages were converted to fixed rate, 30 year loans at a reasonable interest rate that alone would transform them from problem mortgages into loans that could and would be repaid.

In situations in which the mortgage is for more than the house is now worth and the borrower cannot afford the current payments but could afford a mortgage for what the house is now worth why not have the government forgive the portion of the mortgage above the current market value? If the government bought the mortgage at a "deep discount" then it would likely still be worth more than the government paid for it. It would not be to anyone's advantage for the government to foreclose on a mortgage, leaving a family homeless and the government owning an empty house.

Perhaps there would be reasons why these things could not be done, but they sure seem reasonable to me.

Foreclosure Community Meeting this Saturday

I got a nice email from Shelley Sheehy in response to my previous post about the home mortgage foreclosure crisis.

I think that being conservative means a laissez-faire attitude toward enforcement and that is precisely what had gotten many people into the foreclosure situation. When the bank regulators do not enforce fair lending laws or CRA requirements to serve LMI and underserved populations, the predatory products flourish. Not to mention the fact that many of these products were securitized by the investment side of the bank and encouraged through the formation of subprime affiliates early in the history of this debacle. Blaming the consumer is a common practice, but there should be some accountability for Wall Street before any bailout is considered. Conservatives also advocate bailing out Wall Street before the neighborhood.

I have attached the schedule for a Foreclosure Community meeting this Saturday.

Shelley Sheehy
River Cities Development Services
1400 East River Drive
Davenport, Iowa 52803
563,343,5699

Board Member, National Community Reinvestment Coalition
To learn more about NCRC, visit our websites at:
www.communityinvestmentnetwork.org or http://www.ncrc.org/

Proposed Agenda for Foreclosure Summit

Saturday, December 8, 2007 8:30 a.m.-1:30 p.m.

The Quad Cities Reinvestment Coalition (QCRC) is sponsoring a Foreclosure Summit, Saturday December 8th beginning at 8:30 a.m. and ending at 1:30 p.m.

QCRC is convening this meeting in an effort to bring all community resources together to educate ourselves on the extent of the problem and to form a working group to address issues that have come about as a result of the this crisis.

We will meet at the Kahl Building in the 10^th Floor Conference Center located at 3^rd and Ripley Streets in downtown Davenport. Senator Chris Dodd, Chairman of the Senate Banking Committee is scheduled to speak at 11:30 a.m.

Again, this meeting is not designed for those who are in the midst of a foreclosure, but to form a community support system drawing upon federal, state, and local resources in the public and private sector.

8:30-8:45 a.m. Registration and Continental Breakfast

8:45-8:50 a.m. Welcome and Orientation to the Schedule for the Day

8:50-9:05 a.m. Congressman Phil Hare (tentative)

9:05-10:35 a.m.

Identification of the Problem: Foreclosures in the Quad Cities

· Context from a National/State Perspective: Stephanie Preush-Iowa AG Task Force

· Discussion of Local Situation: Brooke Upton/Dawn Mutum-Plies

· Implications for the Local Economy: Jerry Anthony U of I- Bob McGivern-Koester/McGivern Appraisals

10:40 a.m.-11:50 p.m.

Resources Inventory

· Federal: Senators/Congressional Representatives

· State: IFA/AG/IHOEP (Illinois Resources)

· Local: Non-profits/Cities

· Financial Community Response: National/Local

Senator Dodd will speak at @ 11:30 p.m.

12:00 p.m.-1:30 p.m. Brownbag Working Lunch

Community Response: Interactive Session

· Intake/Counseling Support/Gaps in Service

· Monitoring and Updating the Community

· Communication with State and Federal Resources

Update
Since we plan to provide lunch-attendees will need to reserve a spot by emailing rschloemer@housingcluster.org

Some questions for those over the age of 35

Have you been reading about the financial crisis caused by the home mortgage debacle? Here is what Paul Krugman has to say about it. Thinking about it has raised some questions in my mind.

Anyone over the age of 35 or so knows very well the basic rules for making safe home mortgages – ones that will likely not go into foreclosure. They were the rules in place when we were young. A sound and safe home mortgage is based on an accurate appraisal of the value of the property, does not exceed 80% of the property’s value, and is made to someone for whom the mortgage payments are no more than one third of their take-home income.

So, if you are over the age of 35, have alarm bells been going off in your head over the last 15 years or so about what has been happening with home loans? If you have investments have you been avoiding ones that involve pools of residential mortgages? Have you said no to second and third mortgages and variable rate mortgages? If not, why not? Did you think that the need for the old rules were figments of our parent’s imaginations? Or did you think that something had changed so that the old rules did not apply any more? If so, what did you think had changed?

If you considered yourself a conservative at any time during the last 15 years did being a conservative make you more or less likely to think that throwing out the rules for how to write home mortgages was a problem? What exactly have conservatives been conserving?