Throwing bad money after good

U.S. Plans Big Expansion in Effort to Aid Homeowners



The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.

Read the article at The New York Times

McClatchy also has a story on it this morning:

The administration already has such a program in place for second liens, but will be doubling what it offers to lenders in this category to help get them out of the way when modifying a mortgage.

Some of the White House thinking is similar to proposals offered by Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. He was briefed on the plan Thursday.

Frank has proposed making loans from the TARP program to unemployed homeowners with good credit histories. He also shepherded legislation through Congress several years ago to pay banks that were willing to write off large portions of underwater mortgages, or those that exceed the home's underlying value. Lenders showed little interest in taking such losses, however.

Since then, the housing crisis has deepened as the recession piled foreclosures from job losses on top of the foreclosures tied to weak loans, often made to borrowers with the weakest credit.