All Blog Posts from Econwatch

This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.

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Why aren't banks playing the mortgage modification game? We've been told that lenders prefer to modify and/or restructure loans, rather than enter into the costly and time consuming foreclosure process. At least that was the thought when the government rolled out the Home Affordable Modification Plan ("HAMP").

Despite paying up to $1,500 for each modification, plus $1,000 a year for up to 3 years for each borrower who remains current, the program is stuck. 650,000 homeowners have been given trial modifications, but only a fraction of those have become permanent. What's HAMPering progress on the program?

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Nearly a quarter of U.S. mortgage holders owe more on their loans than their houses are worth, according to a report today in the Wall Street Journal.

Data from First American CoreLogic, a Santa Ana, Calif.-based real-estate information company, shows that in the third quarter of 2009 almost 10.7 million households had negative equity in their homes.

Despite good news on the house resales front — it was reported Monday that home sales surged for the second month in a row in October, climbing to the highest level in 2½ years, due in part to a first-time buyers' tax credit — the Journal's Ruth Simon and James R. Hagerty write that this swelling of "underwater mortgages" threatens the prospects of a sustained housing recovery.

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Pending home sales climbed for the third straight month, boosted by low mortgage rates and a first-time homebuyer tax credit, according to the National Association of Realtors.

The real estate group's Pending Home Sales Index, which is based on contracts signed in April, rose 6.7 percent from its March reading to 90.2. April's data also showed a 3.2 percent improvement from a year ago.

“Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” Lawrence Yun, NAR's chief economist, said in a statement. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers."

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Forget AIG. Focus on B-B-B or Bernanke's Big Bet.

The news that matters this week is the remarkable move by the Federal Reserve to purchase an additional $750 billion in mortgage-backed securities and another $300 billion of long-term U.S. Treasury bills.

It is a daring move that signals just how committed Federal Reserve Chairman Ben Bernanke is to kicking the housing market in the pants.

The Fed's commitment to buy massive amounts of mortgage-backed securities (a total of $1.25 trillion to date) is a huge step towards getting credit flowing in the real estate sector by creating a market for mortgage debt.

Make no mistake, the Fed's action will result in more mortgage and commercial real estate loans. Today, tomorrow and possibly for years to come.

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A bill that would allow struggling homeowners to get lower mortgage payments by filing for bankruptcy passed the House yesterday by a vote of 234-191. It is expected to face a rougher path towards approval in the Senate.

There was a mounting sense of urgency driving the legislation's passage. A survey by the Mortgage Bankers Association released Thursday reported that 12 percent of homeowners were in foreclosure or behind on payments. This number is likely to get worse as more Americans join the unemployment rolls. The government announced this morning that over 650,000 jobs were lost over the month of February .

The support of key Democrats was personally solicited by housing secretary Shaun Donovan, who assured wary house members that the bill was a critical component of the president's $75 billion housing initiative. A compromise was reached between moderate and liberal congressmen to prevent homeowners from seeking more favorable mortgage terms through bankruptcy unless they have first tried to reach a deal with their lenders, reports the Associated Press.

Many Republicans are opposed to the measure. They claim that it will encourage lenders to raise rates to offset losses they will suffer if more homeowners renegotiate their loan payments through the bankruptcy courts.

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Gary Varvel is the brilliant political cartoonist for the Indianapolis Star. His depiction of Treasury Secretary Timothy Geithner as an airline pilot trying to reassure terrified passengers about his improvisational flying skills is delicious. It gets to the point that there simply is no textbook response to the global financial crisis. This is especially true when it comes to disposing of those "toxic assets" President Obama, business leaders and reporters keep talking about.

"Toxic asset" has become economic shorthand for the bad loans at the center of this entire mess. The most damaging of the assets are mortgage-backed investments that have threatened the very survival of the world's biggest banks. Basically they are bundles of thousands of individual mortgages. At the height of the housing boom, selling these bundles of mortgages freed banks to loan even more money. Banks, Wall Street firms and hedge funds also bought these securities as investments. But the assets have lost their value as homeowners defaulted on the mortgages, foreclosures increased and home prices dropped.

The plummeting value of the mortgage-backed investments, and other securities built around loans, has forced banks to dramatically cut back on their lending to each other, businesses and consumers. The recession will only deepen unless the banks can eventually get rid of the "toxic assets" still on their books.

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President Obama's
mortgage bailout announcement on Wednesday directs $75 billion in government funds to bail out certain borrowers who are behind on mortgage payments or "at risk" of falling behind.

Although the president said that "it will not rescue the unscrupulous or irresponsible," there's no requirement that that U.S. Treasury deny bailouts to Americans who took outsize risks in hopes that their homes would continue to appreciate.

Which is why Obama's announcement has drawn a howl of protest from renters and those people -- yes, they exist -- who bought cheaper, modest homes they could comfortably afford.

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President Obama announced a $75 billion plan on Wednesday that he said would help as many as 9 million Americans avoid foreclosure.

As EconWatch previously noted, not all of the details are public, and we're expecting to hear more on March 4. For now, though, the below list of Frequently Asked Questions reflects what we've been able to find out so far.

Q: Which mortgage borrowers qualify?

The Homeowner Affordability and Stability Plan is limited to loans held or securitized by Fannie Mae or Freddie Mac, which as of January 1, 2009 have been capped at $417,000 for most areas of the United States and $625,500 for what are called "high cost" areas. There are higher limits for Alaska, Guam, Hawaii and the U.S. Virgin Islands. Mortgages that are linked to Fannie and Freddie are known as "conforming" loans.

Q: If I'm current on my mortgage but my home has decreased in value since I bought it, can I benefit by refinancing?

Perhaps. First, you have to hold a Fannie or Freddie conforming loan. Second, your house can't be too far underwater. The Treasury Department says: "Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105 percent of the current market value of the property."

Translated: If you owe more than $210,000 on a house that's now worth $200,000, you're out of luck.

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