Wednesday, October 01, 2008

We already have a 'bailout'

A Homeowner Rescue Bill was already passed back in May of this year to help home owners who were fighting foreclosure to have their home values reassessed and refinanced at an adjusted (presumably lower) value.

So why has this program not been pushed? It passed. It's out there. The government is already setup to pay for the losses that the banks would take in this program, yet still allowing the bank to retain ownership of the mortgage and arguably it would be in better shape then. The home owner could afford payments, giving the bank interest. Additionally since the government would absorb the loss on the value, assuming that prices don't drop considerably further down the bank would have something of value to claim if the owner still foreclosed.

The major problem I see with this is the bill basically makes all these home owners take an FHA loan with a steep mortgage insurance fee associated, so their monthly payments certainly won't drop as far as they could. The insurance helps pay for the program and was a necessary component to get the bill passed, however it does not help the people with the problem very well. These individuals are not going to have great credit so they are not going to get a great interest rate. The FHA loan will give them some help with the interest rate but not a lot. In the end it'll help some of those home owners that are right on the edge of foreclosure but for some this will not be a viable option.

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