Tuesday, November 25, 2008

The foreclosure crisis

Communities crushed by the foreclosure crisis are dealing with hundreds, and sometimes thousands, of abandoned and deteriorating houses. As local governments scramble to grapple with the problem, Congress, who bailed out Wall Street to the tune of $700 billion, has provided little relief. Four billion dollars has been set aside by Congress to help communities buy up and repair foreclosed houses, but will it be enough? According to Mary Kane in the Washington Independent:
Places hit hard by the foreclosure crisis, like Prince William County, are dealing with hundreds, and sometimes thousands, of abandoned and deteriorating properties like the Irongate townhouse — the damage left behind by the subprime mess. Unlike banks, insurance companies and others that have gotten a piece of the $700-billion rescue bill to help with their credit crisis problems, cities and suburbs are mostly on their own.

It wasn’t supposed to be this way. Politicians in Washington crowed this summer about helping homeowners with a mortgage rescue bill that included $300 billion in guarantees for refinanced mortgages and $4 billion for communities to buy up and repair foreclosed houses.

But since the program launched in October, the Federal Housing Admin. has received only 42 applications to refinance mortgages. That’s a far cry from the 400,000 or so homeowners expected to avoid foreclosure with the lower payment loans.

The issue is that the program is strictly voluntary for lenders. Congress could have made taking part in it a condition of getting money from the Treasury rescue plan — but it didn’t. In an effort to address this omission, government officials announced last week they would make it easier for borrowers to qualify for the loans, in order to draw more applicants.

The idea behind the mortgage rescue bill during the summer had been to combine those refinanced mortgages with the $4 billion for foreclosed properties, and make a dent, on the ground, in the foreclosure crisis, according to Danilo Pelletiere, research director of the National Low Income Housing Coalition. Instead, foreclosures grew at record levels. Refinancings faltered. Now there’s just the $4-billion piece.

Communities have to finish their plans for the money by Dec. 1. The U.S. Dept. of Housing and Urban Development is going to approve the proposals, and give out the funds in February, at the earliest. By contrast, the Treasury bailout plan was approved in two weeks.

“There is no question that you are throwing a small amount of money at a very big problem,” Pelletiere said. “The way this thing has panned out is that it’s a really small amount of help. It really looks pretty wimpy.”
(The video clip above is from the American News Project.)

No comments: