President Obama Identifies The Housing Problem With Foreclosure Tribulations

President Obama

In a speech President Obama identified the housing problems with foreclosure tribulations. Foreclosure hoardings bring down the prices of adjacent houses by 9%. Foreclosure homes are like thermometers that measure the fever of the economy.

To tackle with this fever Congress has offered promise of help to 9,000,000 borrowers who are defaulting on their mortgages with a new measure known as H.R. 1106. Speaker Pelosi is pushing through the legislation with the support of Reid, the leader of the Senate majority whose two states are responsible of about one third of all defaults in housing mortgage in the 50 states of America. There are many angles to the legislation but the main points are giving the financial assistance to the borrowers and the mortgage servicers by dipping into the taxpayer’s kitty.

The mortgage servicers are being promised additional fees for execution of each mortgage modification and the writing down of the principal. The borrowers will be able to avail of many types of debt relief – lowering of principal and interest being the main.

The banks and or the mortgage holders would now come under the purview of a new law that would enable bankruptcy judges’ full authority to write down the principal amount in certain cases. The measure will utilize funds amounting to $75 billion as relief.

According to Milton Friedman a piece of legislation should be judged not by the intentions behind it but by the results it produces. The mortgage relief measures introduced by the Bush government with great aplomb showed scant results. It was trumpeted that 400,000 borrowers would be save by Hope for Homeowners. But in reality only a meagre 25 benefited!

H.R. 1106 may be helping a couple of more foreclosure victims but not to the extent the American public is being made to believe. Moreover it is being pushed through at the cost of dramatically changing rules. The ultimate comprehensive impact will be negative. Up to 9,000,000 new mortgage defaulter will be able to refinance – according to the new plan. But many borrowers will be excluded – those who defaulted with private borrowers, those who borrowed above $729,000, those who have already refinanced, those who lack a steady income and most important of all those who made false statements in their original application. The unfortunate part is that the government lacks the infrastructure to make these forensic tests.