From 'Lifeline' to Stabilization
Critics have been swift to point out that the federal government's proposed (and voluntary) "Project Lifeline" does little more than set a "pause button" on at-risk mortgages. What's needed are "Neighborhood Stabilization" plans.
The nation is in a mortgage crisis. More than one out of every 14 mortgages "are delinquent as of the end of September -- a 30-year high." According to the Federal Reserve, "another 2 million families could face foreclosure in the next 2 years." In an effort to stem this tide, Treasury Secretary Henry Paulson this week announced "Project Lifeline," a voluntary private sector initiative. Six major mortgage lenders have agreed to send letters "to truant borrowers detailing how they can 'pause' the foreclosure process for 30 days while the bank evaluates whether they're eligible to modify their loan on better terms." Yet like other Bush administration "solutions" to the economic crisis, this one is nothing more than a short-term "voluntary breather" and would perhaps be more aptly called "Project Band-Aid." "Homeowners at risk of foreclosure are floating 50 feet from shore while Project Lifeline throws them a 30-foot rope," said Sen. Dick Durbin (D-IL). "We need a plan that goes further."
The current mortgage crisis needs more than this voluntary, markets-based approach. As David M. Abromowitz and Andrew Jakabovics at the Center for American Progress note, "Markets will do their part, but not if they are frozen by a freefall in home prices that sucks in otherwise responsible homeowners. Homes are not just another commodity; when widespread foreclosures drive whole neighborhoods into rapid decline." During the 30-day pause, banks will presumably modify the loans to make them more affordable in the long term. But if history is any guide, this outcome is unlikely. Lenders did very few loan modifications in 2007, at the height of the foreclosure crisis. Moody's, the rating agency, notes that at the end of September, just 3.5 percent of loans reset in 2007 had been modified. "What they actually will do is anybody's guess," The New York Times concludes about Bush's voluntary program.
American Progress has proposed two plans to restore equilibrium to the housing market. First is the SAFE loan program, which "is modeled after the New Deal's successful Home Owners' Loan Corporation" but uses existing government resources to "purchase pools of loans at current value and refinance those loans that are in default or have negative equity into fully amortizing, fixed-rate loans based on the current value of the property." Second is the Great American Dream Neighborhood Stabilization, or GARDNS, Fund, which would help homeowners in low- and middle-income neighborhoods by providing "money to local housing authorities and non-profit organizations to buy foreclosed properties from banks and return them to productive use as affordable housing."
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Exactly!
Freeyoke is correct. The last thing we need is for the federal government to start mucking about in the housing market. It WILL correct itself. That's kind of how markets work. The CAP is not known for it's grasp of fundamental economics.
Quote yourself as a reliable source
"As David M. Abromowitz and Andrew Jakabovics at the Center for American Progress note, "Markets will do their part, but not if they are frozen by a freefall in home prices that sucks in otherwise responsible homeowners. Homes are not just another commodity; when widespread foreclosures drive whole neighborhoods into rapid decline."
There's a lot wrong this short statement and it's worse when a website quote's itself for reliability. The market can't be frozen if it's in "freefall". There's a movement in prices but it just happens to headed downward. Sure, foreclosures can hurt the value of your home even if you been a responsible homeowner but there's no guarantee by the government or private sector that your house will always sell at a higher price. Planners are aware that maintaining or increasing the value of land is usually a good thing implying a growing economy and bigger tax base.
Homes aren't just another commodity? Technically speaking housing isn't a commodity at all because it is not movable. See definition below:
"Any item that can be bought and sold. Taken to refer to Exchange – traded items including sugar, wheat, soya beans, coffee and tin. That which affords convenience, advantage, or profit, especially in commerce, including everything movable that is bought and sold (except animals), -- goods, wares, merchandise, produce of land and manufactures, etc. In the world of business, a commodity is an undifferenciated product whose market value arises from the owner’s right to sell rather than to use. Example commodities from the financial world include oil (sold by the barrel), wheat, bulk chemicals such as sufuric acid and even pork-bellies."
http://finance.indiamart.com/markets/commodity/definition_cacommodity.ht...
I'm sure the hacks on that website are using the word commodity in a broader sense as in something that can bought or sold are still missing the point. Homes can be bought or sold. Once home prices drop to realistic levels from their grossly inflated prices in some markets, new buyers will enter the market to buy them.
Should there be a government backed guarantee return on the value of a home? Sounds good if you are homeowner but it screws people who want to buy a house at a bargain price. If you thought the speculators were bad during the housing boom, wait until they realize they can't lose money. Investors will plow money into housing pushing up prices again and overbuilding again. We'll be a in fixed price spiral upward and people will blow the increased estimated value of their home on other goodies. It won't solve the problem but continue a perpetual motion machine of money that is impossible to sustain realistically. Instead of investing in say technology, medical advances or energy, we'll continue to channel capital into bigger, more expensive homes for smaller households. Best advice on buying anything- caveat emptor.