I learned from an article by David Dayen on Firedoglake.com that Senator Jeff Merkley of Oregon has proposed a set of changes that would be designed to fix some of the problems that have plagued the housing market and the economy over the past four years. Sen. Merkley said on his website: “we’re not going to see a true economic recovery until we do something about the broken housing market“. An overview of the proposed changes:
- The foreclosure/modification dual-track would be ended. Currently distressed borrowers who are attempting to get a mortgage modification are often put into the foreclosure process at the same time. Often times, the foreclosure moves more quickly than the foreclosure. This seems nonsensical, and is extremely frustrating and unfair to borrowers seeking modifications. Under the new plan, foreclosures would be suspended as borrowers attempted to get mortgage modifications.
- A true short refi program would be enacted. Those who qualify would be able to refinance into an FHA mortgage. The mortgage would be written to match the current market value of the home. This would allow underwater homeowners to refinance at today’s low mortgage rates and would also modify the principal owed on the mortgage. This would give people the opportunity to build home equity and hopefully give them an increasing incentive to keep making their mortgage payments.
- Lenders and servicers would be required to provide borrowers seeking modifications with one point of contact throughout the modification process. Although I have not been through the process myself, I have heard dealing with numerous people at a lender/servicer when trying to get a mod is very frustrating. Sometimes the borrowers will get conflicting information or bad information. This part of the proposal would aim to eliminate this frustration.
- An independent review process would be created to evaluate foreclosures. This would ensure all other options were exhausted, that homeowner’s rights were protected, and that laws regarding foreclosure were followed. I am not sure if this is logistically possible, but it seems like a good idea.
- Bankruptcy reform! The reforms would allow judges to enact mortgage cramdowns. In essence, the borrower who declared bankruptcy would have their mortgage debt secured to the current market value of the home. The remainder owed on the house (above the current market value) would be lumped in with other unsecured debts.
- A tax credit of about $5,000 for first time home buyers to stimulate the housing market. I wasn’t a fan of the last home buyer tax credit (because it was expensive to taxpayers and probably had a real marginal effect on the housing market in the long run), and I don’t see why this one would be much better.
To me a lot of the ideas in the proposal have a ton of merit, but I strongly suspect that there is an infinitesimal chance that any of these changes actually get through committee, let alone get passed into law. Mortgage cramdown legislation was proposed by Sen. Richard Durbin back in 2008-9. It did not pass then, and I feel as though this proposal would have even less chance of succeeding with the increased Republican presence in Congress.
What do you think about this proposal? Do you think it would be effective? Do you think that it has even a snowball’s chance in hell of being enacted into law? Let me know in the comments section below.
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Stacy
January 21, 2011 @ 10:08 am
I’m glad to see new ideas thrown out regarding this crisis. However, Congress is still NOT “getting it”. There is nothing to help those of us who are underwater through no fault of our own and need to sell for a job change. We have never missed a payment and yet cannot build a cent of equity because of those who already walked away and NEVER should have qualified to “buy” a home in the first place. We need to SELL and move for a job but would need $50,000 cash IF a buyer could be found. The banks won’t re-fi us, even though our credit is perfect, because our income is down. There has to be away to get people able to move for job opportunities and afford to sell the house they are in or rent it. Renting this would be a loss of $600 a month out-of-pocket. It’s just crazy and sometimes I think the ones who walked are the smart ones! The rest of us left behind, paying our mortgage, are punished. What a message to send!
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Brian Reply:
January 23rd, 2011 at 7:01 pm
I agree with you. I have had opportunities to move elsewhere, but when I bought my house in 2008, the housing values were already down, and I was told it was a great time to buy that prices wouldn’t go any lower. Well, everyone then started walking away from their houses and the house next door to me sold for half what I paid for mine in 2008. This hence caused my value to get hit by 25%. If I had waited another 2 years, I could have bought a nicer house for the same price, and not feel like I bought a house that I don’t see rebounding anytime soon. My personal feelings are that the banks created this mess and they should fix it. I think they took the bailouts as a way of rebounding themselves so they can screw the rest of us over who pay their loans back, but on a property thats lost its value. I think the banks should go through every loan and modify it to current intrest and property value rates. This would keep people in their homes and make some of who are thinking about jumping ship stay because we feel like we were sold a bad deal. For those that disagree about the the bad deal, I didn’t ask the bank to dump the house next door for half what I paid for mine causing damage to my housing value just because they wanted it off of their books. They got the write off, I got a house thats worth less than I paid for it.
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Peter K.
January 26, 2011 @ 12:03 am
I planned to short sale my house then Sept 7th 2010 the government came up with “fha short refinance”, making me try to current my payment and hope the BoA would participate this program. After more than 3 months, I see no hope then again plan to short sale. Now I have hope again with words from Sen. Merkley.
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Jay Dey
February 7, 2011 @ 12:46 am
I would really like to see a real and enforceable “short refi” program be put in place. That will help al of us responsible borrowers who have worked hard through the crisis to make on=time payments, and now have higher quity values than the home proces. A lotof speculative buyers and banks have gotten out through loan modification, foreclosures, goverment TARP program, etc. Please help the people who have been honest borrowers, and helped the economy stay on its feet.
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Patti
September 27, 2011 @ 9:47 am
I saw a show on Fox News Network very recently, and one of the guests on the show a called Bulls & Bears (one of the so called economic “experts”) Were going on & on about how he couldnt get a reservation at a Chicago restaraunt, that the stores & malls were packed and how wonderful life is here- That is a completely inacurrate pictue of how it is most places in the Chicago & Milwaukee metro area. I am 50 miles North of Downtown Chicago, and in this area where if its not a short sale then its a foreclosure. I am 40k underwater on an ARM I got just before the bottom fell out and my servicer is privately held they will not participate (nor do they have to) in HAMP or other programs. Washington is FAILING so many homeowners. That and the fact that they just dont get it…not even slightly.
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