As the economic crisis continues to reverberate around the nation, troubles in the housing sector remain key to the upheaval -- and many homeowners are facing foreclosure in the interim. Economics experts debate various measures being considered to help homeowners in trouble.
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Ever since Congress passed its financial rescue package last month, fears have grown that the twin problems of decreasing home prices and increasing foreclosures had not been adequately addressed.
Amid growing calls to help distressed homeowners, more direct responses now appear to be in the works.
According to recent data, foreclosure filings in the third quarter were up 71 percent from a year ago, with some regions hit particularly hard. And the average price of a home dropped by 9 percent in the last year. Again, some areas saw much greater drops.
In recent weeks, candidates, lawmakers, and academics have put forward a variety of proposals to address the problem. And now the Bush administration appears ready to make its next move.
On Thursday, officials appearing at a Senate hearing said they're working on details of a plan in which the government would provide a partial guarantee on troubled home loans. Sheila Bair is the head of the Federal Deposit Insurance Corporation.
SHEILA BAIR, Chairman, Federal Deposit Insurance Corporation:
The FDIC is working closely and creatively with Treasury on ways to use the recent financial rescue law to create a clear framework and economic incentives for systematically modifying loans. The aim is for loan servicers to offer homeowners more affordable and sustainable mortgages.
The new plan, which could be announced in the next week or two, is estimated to cost some $40 billion.
And now a look at several ideas on the table. Bruce Marks is the chief executive of the Neighborhood Assistance Corporation of America, a not-for-profit advocacy group for homeowners.
Dan Alpert is founder and managing director of Westwood Capital, a small investment bank.
And Neil Irwin is a financial reporter who's been covering the housing and banking crisis for the Washington Post.
Bruce Marks, let's first define the problem. Beyond the numbers, what's happening out there? What do you see?
BRUCE MARKS, Neighborhood Assistance Corporation of America: Sure, I mean, what is out there, Jeff, is that it's the foreclosures, stupid. That's what we have to say to Congress and we have to say to the administration, because all the solutions out there, the refinances, all those solutions are not working, and that there are millions of homeowners at risk of foreclosure because they can't afford their mortgage payments.
So what we have to do is we have to restructure these mortgages to make them affordable. That's not being done, not being done by the servicers or by the investors. All the solutions out there are failing, Jeff.
So in simple terms, explain what you think should be done. What are the general principles for any plan?
Right, well, the real general principles is to go back to what lending used to be. It's saying, "Let's determine what a homeowner can afford."
So what we say is, what is someone's income, their required monthly liabilities, their card expenses? And then you come up with a mortgage payment and you say, "This is what I can afford." And that's how you do it.
Now you have to restructure the mortgage. Let's not do a new loan, a refinance. Stay with the existing lender, servicer, investor, and say, "Reduce the interest rate to get to a mortgage payment that the homeowner can afford."
It's basic lending. It's going back to the fundamentals. This is what the homeowner can afford. Restructure the mortgage. And that's good, Jeff, for everybody.
It's good for the homeowners. That's good for the servicers who are overwhelmed. Good for the investors. Good for the communities. And you can do that without one dollar of taxpayer money.