Barney Frank’s Foreclosure Plan

March 17th, 2008 | Tags: Foreclosure

Barney Frank (D-Massachusetts), chairperson of the House Financial Services Committee, wants the government to pledge guarantees for loans up to $300 billion. His plan will make it possible for Federal Housing Administration to insure and provide guarantee to refinance mortgages. If brought into force loans number 1 to 2 millions weighing down high-risk borrowers will be modified and give them to chance to continue to stay in the houses that are their homes. In return for this the lenders will get payment from the funds of a new FHA loan. The plan would make available $10 billion by way of loans and grants to purchase and rehabilitate foreclosed houses. The target is to see abandoned houses occupied and to see that no further abandonment occurs. Frank reiterated that now the time has come ‘for the public sector do some bargain shopping.’ Over the next few weeks Frank will try to find out reactions to his scheme.

Last Wednesday a bill was introduced by the lawmakers belonging to Frank’s committee. Mortgage servicers who engaged in loan modification workouts with borrowers would be granted legal protection if the question arose. Another big step forward is the issue of proper appraisals. In this field there has been a lot of fraud in recent times. Reviewing the same will lead to writing down loans on the basis of a correct valuation of the properties mortgaged.

There is apprehension that the plans of Frank will face opposition from some quarters of both the Democrats and the Republicans. President Bush categorically stated that it would be a ‘huge mistake’ for the government to buy vacant foreclosed houses to save the locality.

John Taylor of the National Community Reinvestment Coalition, committed to fair lending, commented that Frank would have a tough time to get his plan supported. So far suggestions about voluntary steps have not worked. Any idea of government involvement in a so-called bail out will not go down well with the public. The call of the hour is a far reaching solution. The NCRC has called for a three year operation named Help Now in which the Treasury Department would buy loans, including the securitized ones, at a considerable discount. These would be sold back to the private market after modification with lower principals and interest. It would strike a balance between helping lenders and borrowers. Servicers being spared litigation could not hold it up as an excuse for not doing anything.