US banks to gain from home loans aid
By Suzanne Kapner in New York
Published: March 26 2010 19:20 | Last updated: March 26 2010 19:20
Banks stand to benefit from the Obama administration’s latest initiative to help struggling homeowners.
The administration plans to use $14bn of taxpayers’ money to allow borrowers to refinance with federally guaranteed loans at lower rates.
The scheme, which also provides for debt forgiveness and principal reduction for unemployed borrowers, will be paid for by money from the troubled asset relief programme, the bank bail-out scheme.
The latest evolution of the Home Affordable Modification Programme , like the initial version, is voluntary. While it provides incentives for banks to participate, there are no requirements for doing so.
“Everything they put on the table helps the banks disproportionately compared with homeowners,” said Dean Baker, co-director of the Center for Economic & Policy Research, a left-leaning think-tank. “Because the Federal Housing Administration will be guaranteeing these loans, when they go bad it’s the taxpayer out of that money, not the banks.”
The Mortgage Bankers’ Association and the American Securitization Forum both supported the plan, as did Hope Now, an industry alliance of mortgage servicers.
The proposals unveiled on Friday mark an important turning point in the Obama administration’s efforts to halt a housing collapse. The crisis began with a wave of defaults by riskier subprime borrowers, but has shifted to mainstream homeowners who have lost their jobs or now owe more than their properties are worth.
The latest plan attempts to address that shift by helping the 3m to 4m homeowners that the administration deems “responsible” – not speculators or investors or people who bought homes they could not afford, but who are temporarily out of work.
The programme also excludes holiday homes and those with a mortgage balance of more than $729,750 (€547,700, £490,200).
Mortgage servicers will be encouraged to lower monthly payments for eligible borrowers to no more than 31 per cent of their income and provide debt relief for a minimum of three months and as long as six months.
Also included in the plan is an attempt to unstick the logjam of second lien loans. Banks that hold these loans have resisted modifications because they fear that they, as subordinated debt holders, will not get paid. Now that borrowers will be able to reduce overall debt to no more than 115 per cent of the value of their home, second lien holders, along with holders of first liens, will be encouraged to accelerate write-offs.
Consumers groups said they supported any steps to help struggling homeowners, but worried that the new plan did not go far enough. They pointed out that under the existing HAMP programme, only 170,000 borrowers had received permanent modifications.
“We remain concerned that even these new, improved programmes remain voluntary,” noted the Center for Responsible Lending. “The entire system relies on incentives without any mandates – we have carrots, but no sticks.”
There are signs that mortgage services are beginning to recognise that it is in their interest as much as in the interest of homeowners to start tackling this pile of troubled loans. By some estimates foreclosures could reach 12m over the next few years. Bank of America on Wednesday unveiled a plan to offer loan forgiveness to 45,000 homeowners.
No comments:
Post a Comment