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Paul Kiesel
Paul Kiesel
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Loan Modification and Foreclosure Mitigation Efforts in the Bailout Bill

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A key provision added to the bailout bill by Democrats last week, and a provision that likely dissuaded about two-thirds of House Republicans from voting “Aye” on the failed bill today, deals with foreclosure mitigation efforts and the need for the Treasury Department to modify loans that are considered to be “avoidable foreclosures.”

According to section 109 of the Emergency Economic Stabilization Act of 2008, “[. . .] the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering the net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.”

The reason for this provision? Because Democrats saw a White House administration trying to get a bill passed without review and one that only provided relief to Wall Street banks (the dumping of “illiquid assets” or securities packed with bad mortgages), and wanted to protect taxpayers from the original version of Bush’s Bailout, where the government would have assumed the responsibility of all these bad loans without any taxpayer protection or relief to troubled homeowners, many of who were manipulated into loans with fraudulent/misleading language that broke Truth in Lending laws.

Sec. 109, continued: “Federal Government entities that hold troubled assets [shall coordinate] to attempt to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and, where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease.”

I wonder if House Republicans and even some House Democrats who voted against this bill today, representatives who are up for re-election this November, will feel comfortable going back to their districts, and telling voters that not only are they not concerned about homeowners, but they are also apathetic to renters who appear to be political collateral damage, as they didn’t even participate in Wall Street’s avarice.

The loan modification section of the emergency bailout package is not only needed, but it is a less expensive route for the government and taxpayers. Since the government is assuming the responsibility of these bad loans, it would be irresponsible for our government not to prevent avoidable foreclosures and just assume the weight of the net loss. It makes more sense for the government to modify a loan, and hope the housing market bounces back in a couple years, than to let a home foreclose and then force our government to enter the real estate business, thereby nationalizing that industry, too.

Some foreclosures will not be preventable, however, our government needs to be pragmatic in its short and long term decisions and understand that when a loan is considered to be an “avoidable foreclosure,” it’s in everyone’s best interest to prevent it from foreclosing (via loan modification by the Treasury) or else the Treasury is taking a reprehensible route and gambling with taxpayer money.