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What Is Being Done In Washington To
Help Ease The Mortgage Crisis?
Despite the usual
skepticism about the federal government and Congress’ ability to get
anything done, the administration has indeed taken steps to help ease
the mortgage crisis—and further legislation is pending. Here’s a
rundown of what the federal government has done and what other programs
are currently in the works:
The Federal Housing
Administration has been involved in most of the new regulations. The
most ambitious new program, called FHASecure, guarantees loans for those
homeowners who are in danger of defaulting due to mortgage resets.
According the Department of Housing and Urban Development, FHASecure has
helped over 150,000 homeowners avoid foreclosure by refinancing out of
sub-prime loans. Whereas the FHA was a relatively small player in the
mortgage market a couple of years ago, it now expects to insure $224
billion in loans in 2008, up from $60 billion last year.
Other government
programs include a recent expansion in the size of loans Freddie Mac and
Fannie Mae can guarantee. The two mortgage giants can now guarantee
loans of up to $729,750, which is up from $417,000. Also, a program has
been put into place to incentivise mortgage-servicing companies to
modify interest rates on some adjustable rate mortgages. Finally, the
Federal Reserve has increased the amount it lends to banks and security
dealers in an effort to allow them to better finance mortgage-backed
securities, which in turn encourages those banks and firms to increase
the number of new mortgages they can make.
Although no
wide-sweeping legislation has been signed into law yet, Congress is
working on several different proposals to help ease the crisis. Possible
legislation includes tax breaks for home builders, tax credits for
buyers of foreclosed homes, and direct funding to local agencies for
purchasing and rehabilitating foreclosed properties. Also, Congress is
considering a bill that would allow the FHA to insure loans with small
down payments and give the FHA greater flexibility in terms of the
insurance premiums it charges. Congress and the White House are at odds
over the costs of such proposals, but most Congressional analysts
believe a compromise is forthcoming.
So the big question
is: Will these steps help to ease the mortgage crisis and help
homeowners? Although the true effectiveness of these programs can’t be
measured just yet, most experts do believe that these new programs and
incentives—taken together—will have some effect going forward. As to how
much, that remains to be seen. ∆
Sources: Wall Street Journal, HUD
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