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Real Estate - Washington's Foreclosure Rescue Plan
- By Mark Walters
- Published 11/13/2008
- Real Estate
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Mark Walters
Mark Walters is a third generation real estate investor and is offering a Free copy of his big guide to finding private and hard money loans for real estate. http://www.FindPrivateMoney.info Mark also offers free investor training.
View all articles by Mark Walters
Can distressed home owners expect a Foreclosure rescue plan to save the day?
Glad you asked, because the Federal Deposit Insurance Corp has been working on just such a plan, It's is designed to rescue between two and three million homeowners. By the time you read this the plan will probably have hit the street in some form.
The key element of the foreclosure rescue plan is to motivate banks to rework real estate loans rather than foreclosing on homes. Your generous government will remove the bank's risk by providing a partial federal guarantee for any losses on all the modified Mortgages that meet certain criteria.
Remember that $700 billion bailout fund? That's right, the one that passes out a few million to any Wall Street firm that made money losing investments. Well the foreclosure rescue plan would use between $40 billion and $50 billion of that money to underwrite the rescue.
Couple this plan with the recent announcement by some of the United States' major banks that they are halting real estate foreclosures and reworking many
when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.'); return false">Mortgage loans. All this should halt the slide in real estate values, right? Maybe not…Glad you asked, because the Federal Deposit Insurance Corp has been working on just such a plan, It's is designed to rescue between two and three million homeowners. By the time you read this the plan will probably have hit the street in some form.
The key element of the foreclosure rescue plan is to motivate banks to rework real estate loans rather than foreclosing on homes. Your generous government will remove the bank's risk by providing a partial federal guarantee for any losses on all the modified Mortgages that meet certain criteria.
Remember that $700 billion bailout fund? That's right, the one that passes out a few million to any Wall Street firm that made money losing investments. Well the foreclosure rescue plan would use between $40 billion and $50 billion of that money to underwrite the rescue.
Couple this plan with the recent announcement by some of the United States' major banks that they are halting real estate foreclosures and reworking many
Douglas Elmendorf is a real smart guy and former Clinton advisor. Good old Doug says, "Even an ambitious program of mortgage modifications will not prevent a further decline in house prices."
"It might prevent an overshooting of house prices on the downside. But houses still look overvalued relative to people's rents or incomes, and it's going to be very difficult to sustain house prices at their current level."
History has shown that any market must have a complete correction before it can begin moving to the up side, so it should come as no surprise that any attempt to keep home values artificially high will just postpone the inevitable and delay the eventual recovery.
The bad news is that foreclosure sales have continued to drive price declines and fueled an increase in sale transactions in key local markets across the nation and there is no sure end of foreclosures in sight.
The Federal Reserve reports that the nation's troubled economy has scared the pants off of foreign and domestic banks. They further tightened access to mortgage credit recently. A survey of 55 domestic and 21 foreign banks indicated that the large majority of domestic banks reported tightening their lending standards on prime, nontraditional and subprime residential mortgages over the past three months.
Lending standards have even increased on prime mortgage loans. When it comes to prime mortgages about 70% of the banks tightened lending requirements. It should be no surprise that 90% of the banks tightened the screws on nontraditional mortgages.
Tighter lending standards generally lead to reduced borrowing, which explains why 50 percent of domestic lenders experienced weaker demand for prime residential mortgages. 70% even indicated weaker demand for nontraditional mortgage loans and jumbo loan products.
While lenders have been making it more difficult for potential home buyers to qualify for mortgage financing interest rates have been inching up. That's a double whammy for home prices. If people can't afford or qualify for a mortgage they can't buy a home.
The final result is fewer buyers for an increasing number of homes for sale. Can those financial geniuses in Washington really come up with a foreclosure rescue plan that doesn't do even more damage to what's left of the free market? I wouldn't bet on it.
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3 Responses to "Real Estate - Washington's Foreclosure Rescue Plan" 
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said this on 14 Nov 2008 3:43:32 PM PST
Their program will be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, expect that about 50% can be modified, resulting in some 2.2 million loan modifications under the plan.
That means 50% of those who do not qualify to get modified, will need help! Let's lighten up the assumption rules so that ethical investors can buy these people out of their loans before the lose the house to foreclosure.
I agree that this means our window to buy REOs at unbelievable prices will not be here forever as the flow of new REOs will be slowing down and our house market will stabilize once this excess inventory is absorbed.
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