By Carla Ghosn, CEO of Mycaal.com.
While the Obama administration is in the process of tackling the challenges related to kick-starting a very crippled housing market, one of the top Federal Reserve board members by the name of Elizabeth Duke is pursuing a strategy that involves the relaxation of qualifications for home loan financing. Also included in Duke’s initiative is the facilitation of the conversion of bundles of lender-owned homes into rental properties.
A significant degree of strain is being placed on the administration to address housing market conditions and to improve the economy, but many real estate policy professionals believe that the administration’s efforts are doomed to disappoint. This statement is based on the fact that the decreasing values of homes is a problem which has developed over a great deal of time, and one which has become incredibly complex. The reality is that federal efforts to improve housing market conditions have thus far produced very disappointing results.
During the month of August, the administration invited feedback on how to convert the excess of vacant homes into rental options. Since that time, administration officials have loosely proposed an idea that methodically allows homeowners who are up to date on their mortgages but who owe more than their properties are worth, to restructure their loans into decreased-rate mortgages (pursue loan modifications). According to a number of reports, this plan has encountered a number of road blocks due to the fact that implementing it would reduce the losses suffered by the federally sponsored Fannie Mae and Freddie Mac. Edward DeMarco, who serves as the acting director of the FHFA (Federal Housing Finance Agency) is reported to be guarded against any strategy which adds to the burden on taxpayers.
Both the proposed refinancing and rental strategies have been under consideration for a number of years, but the administration has failed to take any kind of decisive action. At a Federal Reserve housing conference which took place last week, Duke gave merit to both ideas and expressed her desire to see smaller, more detailed plans being put in place. She mentioned that the policy focus has been too targeted on exhausting mortgage modifications as a means to help homeowners save their homes, and that a greater measure of attention needs to directed toward decreasing the financial pressure faced by homeowners who are underwater. Another point made by Duke is that the escalating inventory of housing stock which is loosing value and which could be rented by people who are unable to buy, ought to be swooped up.
In addition to this, Duke resisted the idea that allowing greater refinancing would not be fair to investors of mortgage-backed securities. In Duke’s view, the HAMP program which allows homeowners who have mortgages backed by Freddie and Fannie, and who possess a limited to zero amount of equity, to refinance in an attempt to benefit from decreased rates, needs to be restructured. Some of the suggested alterations to the program include the scrapping of high upfront fees for the homeowner, and the “put back” risk which refers to banks who initiated the loan and transgressed against the GSE‘s underwriting policies having to repurchase those mortgages.
According to some housing market analysts, if the administration is genuinely committed to improving housing market conditions, it must adopt a realistic view about what it can achieve. A number of experts do not expect the latest batch of ideas to translate into any real positive shift in the economic forecast. It is an overall state of affairs that leaves the average struggling homeowner with little reason to be upbeat about the imminent future of the housing market.
About Carla Ghosn
|CEO and Founder of Caal (mycaal.com) keen on helping American homeowners save their home. If you need help with your loan modification, visit www.mycaal.com to get help on pre-qualifying your loan for approval, as well as preparing and printing your loan modification package online.|