Treasury Secretary’s Revival Plan: Ray of Hope for Mortgage Market
RateEmpire.com
The banks are now skeptical on investing money on anything related to real estate market. The market has been showing no signs of improving in the recent past. U.S banks are showing lack of interest in the lending provisions as the loan losses in the 3rd quarter of 2007 has rose up high. Banks have set aside $16.6 billion to wrap the loan losses earlier in 2006, and in the 3rd quarter it was $9.2 billion. The loan amount and leases, which were of the duration of 90 days or more, increased by $ 16 billion; house mortgage loans with same timeline increased by $7.5 billion and HELOC i.e. Home Equity Line of Credit increased by $783 million.
Treasury Secretary Henry Paulson has formed a plan to help the sub prime borrowers by attempting to induce mortgage lenders to hold up rates. The U.S Office of Thrift Supervision sponsored the National Housing Forum on Monday 3 November 2007. Paulson stated in the forum that both the government sector and the private sector needed to get involved in providing a solution for the problem. He insisted that the underlying economy is strong. However, the problem of housing market recession has become one of the biggest hurdles the economy is facing.
He stated that the Treasury was pursuing a plan to help the proficient homeowners to avoid foreclosure. The homeowners here need to have financial resources to own a home. Paulson said the Treasury would make an effort to unify a diverse group of market participants. The treasury intends to reach those capable homeowners who are struggling to repay the mortgage loan. They would be reached early and provided with information and hope.
Paulson further informed that the mortgage industry bigwigs had already started reaching the defaulters but borrowers who were in trouble did not speak with their lenders. Mortgage counselors were more successful in having a free chat with them but they did not know which borrower needed the help most. Treasury and HUD were responsible in bringing the counselors and investors in the HOPE NOW alliance. The pact is among the mortgage service providers, counselors and investors to help smoothing the functioning of the mortgage market and rectifying the problem current industry is facing.
Treasury is conferring a second step, which is to increase the number of affordable options for the troubled borrowers. Loan modifications and refinancing options are being considered as affordable solutions along with proposing funds by the state and local governments. Paulson talked about the tax exemption by the state and local government on first time homebuyers or money crunched buyers. The administration is offering the states to broaden their tax laws temporarily to embrace mortgage refinancing to reach more homeowners.
The Secretary proposed that the third step government needs to take is developing an organized solution for transition of struggling borrowers to affordable mortgages. The industry is hoping that when the number of struggling homeowners increases next year, by an aggressive and systematic process it would be possible to move them to an affordable solution.
Mortgage rates readjust could account for the hiking of mortgage payments and could show the way fore more foreclosures by the end of the last quarter of 2007.
Paulson is trying to pursue Congress to pass bills to enlarge the availability of FHA insured loans. It would need more farsightednesses from the executives than the likes of Fannie Mac and Freddie Mac. Federal Reserve has injected billions of dollars in the mortgage industry in an effort to revive the sagging mortgage industry. Already the mortgage foreclosures have shown signs of collapsing the whole sub prime industry. It would not be an easy job for Paulson to convince the executives all over the mortgage industry as well as those in state and local governments.
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