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Paul Kiesel
Paul Kiesel
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$800 Billion in Mortgages are at Moderate to High Risk of Defaulting

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The New York Times, on February 23, 2008, published an article that elaborated on a Bank of America sponsored housing relief package that was being proposed to Congress, in order to curb further losses for lenders and homeowners. After reexamining the article, two things catch my eye 1. Nearly $800 billion in mortgages are at risk of defaulting over the next five years (a ballpark figure proposed then and a dollar amount still viewed as being accurate now) and 2. It’s startling to see how little has been accomplished since Bank of America suggested to Congress that a Federal Homeowner Preservation Corporation would be created in order to buy up billions of dollars in troubled mortgages at a deep discount. Hope Now has continued to flounder, and Alt-A types loans will have interest rate resets later this summer, bringing in another wave of defaults and foreclosures, on top of the subprime problems the housing market will continue to face.

First, it would be impossible for our government, in its current state, to create an entirely new agency, in a reasonable amount of time, that is devoted solely to the cause of buying underwater mortgages and then brokering a deal directly with the holder of the mortgage, in order to buy the loan at current market value. Too many homeowners will have lost their homes by then, and there will be that many more homeowners in danger of losing their homes by the time a program is established. In fact, knowing what the White House has put forth over the last ten months, and its urgency, it appears that it’s doubtful that a program could start from within an existing agency. Congress needs to come up with a better short term resolution, to mitigate foreclosures, and then go back to the table and find a long term solution.

Some type of plan needs to occur that puts more responsibility on the lenders, not the government and not the homeowners who were put into Option ARM or Alt-A loans through a variety of predatory lending tactics, like TILA form ambiguities.

The lenders have wanted less oversight for many years, and they finally got it about eight years ago, thanks to Senator Phil Gramm’s Commodity Futures Modernization Act, therefore, they should take a brunt of the responsibility for the economic hardships they caused.