President Obama announced earlier this week yet another federal plan for dealing with the national surplus of foreclosures. This one could take effect as early as next week, and would allow the Federal Housing Administration to give refinanced loans backed by the government to strapped homeowners.
For the lenders, the kicker is that they would have to reduce the balance of each loan by at least 10 percent.
For homeowners, the kicker is that you don’t apply for this program — they’ll call you. In actuality, the plan requires the owners of the loans (banks and other investors) to select which ones they want to modify.
So far federal efforts to fix the foreclosure mess have fallen short of their goals. The government has only nibbled around the edges of the crisis, as its programs have run into numerous problems.
The lending industry was ill-prepared for a crush of distressed homeowners, the economy worsened, and millions of homeowners had taken on so much debt that their financial woes have been nearly impossible to resolve.
Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration’s main mortgage-relief program — overseen by the Treasury Department — have fallen out over the past year.
In my opinion, an alternate idea that has been floating around for several years is more promising. Why not let homeowners use Chapter 13 bankruptcy to modify their underwater mortgages? This solution would put the home owner in charge of the timing, not the banks, and would restrict abuse by the debtors, as there are several checks and balances already built-in to the Chapter 13 system.
Change one sentence of federal law, and we could go a long way toward fixing the problem. And it would probably help turn the economy around a lot faster than the administration’s latest proposal.
By Doug Beaton