Solution to Economy Depends on Refinanced Mortgages, HOME Act

As recently as September, one in 10 Americans was either behind in their housing payment or in the midst of foreclosure. In the third quarter of 2008, housing prices had fallen in 41 states and by November 2008, the median home price had fallen 12 percent from the previous year. No matter how you add up the numbers, the bottom line is the same: American families are losing their homes and our economy is trapped in a downward spiral. Unfortunately, I know this problem all too well. It began in my own backyard in California's Central Valley, which has been coined "ground zero" of the housing crisis.

Enough is enough.

With such momentous problems, it is time that we create an equally bold and momentous solution. That solution is the Housing Opportunity and Mortgage Equity (HOME) Act, H.R. 230, which I introduced in the House of Representatives this week. This measure offers every credit-worthy American homeowner and homebuyer a refinanced mortgage with a 4-percent interest rate at a fixed 30-year term. The government has attempted numerous band-aid solutions, providing billions of tax dollars to various financial institutions and flawed programs. However, none of these actions have alleviated the suffering; instead the economy has worsened and more and more families are losing their homes, jobs and retirement funds. As I and many economists have said for some time now, the mortgage crisis continues to be at the heart of our economic woes. Until we address that crisis, we can only expect more economic turmoil. My proposal is simple: put homeowners and homebuyers in affordable mortgages to stabilize housing prices while stimulating the economy by putting more money in Americans' pockets.

Because the federal government is the conservator of Fannie and Freddie, we are in a unique opportunity to conduct this program. Although such a far-reaching action by the government would have been inconceivable before the burst of the housing bubble, this is now the most responsible action that Congress can take. For far too long, the American people have been eyeing Washington and wondering how the Congress will help them. The answer should be now, with the HOME Act. This crisis began with the collapse of the housing market and that is exactly where we must begin to correct our economy. The HOME Act will do just that.

Comments

[GTRich2004]

Rep. Cardoza,
Interesting plan; let me ask you a few additional questions:

1. Why won’t this create another housing bubble when people go out and buy homes they really can’t afford with the 4% rate?

2. What about 15 year loans. If you’re willing to offer 4% - 30 year fixed loans, what about those of us that are looking to buy a house in the near term and want a 15 year loan instead? Will you legislate that I can get a 3.5% rate on my 15 year loan?

3. Why will this time be different than the last program where 53% of the people who had their mortgages modified were already behind on the new mortgage? http://money.cnn.com/2008/12/23/real_estate/new_modifications_same_problems/ "But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages"

[timm0]

I sure hope this also addresses the corporate relationships between financiers and the foreclosure businesses. When companies that write loans can profit in any way from a foreclosure on any loan they've written, someone should be in jail for the immorality of that game.

If the health insurance industry (blech!) had the same structure, they'd sell you insurance for a period of time and then kill you when you get sick, before you can become a drain on their balance sheet. Come to think of it, they're not too far removed from that, are they?

Also, foreclosures immediately devalue (even more than things already are) property and belongings. I can only assume that it's still financially in the best interest of mortgage companies to throw people on the street instead of coming up with better loan terms to try to keep people in their homes. What a truly disgusting "business."

[wpooh]

It is not the homeowners stupid, it is the Wall Street wheelers and dealers. They are the ones that got us into this mess with their derivatives, hedges, and speculations. Stop blaming the victims.

Financial institutions APPROVED all loans. $$$ Financial institutions received $325 Billion dollars of taxpayers money. What did they do with the multi billion bailout welfare? Handout million dollar bonuses, office redecorations, and corporate retreats at luxury resorts, while we suffer higher unemployment, tight credit and higher foreclosures.

Just bought my house 15 months ago with a 30 yr fixed rate mortgage, credi score over 700. Value lost = 1/3, not my fault!

Economists say losses will get worse. So why pay on negative investment? Doubt if I’d breakeven or make profit in 10 years. So why continue to pay the mortgage? Banks use mark to market accounting to write-off lower asset values (my loan), so why not I get a reduced principle? Many feel like I do; let the bank take this underwater investment back. There are 6 vacant homes on my block.
Rep. Cardoza's proposal does not fix / ignores/ does not address the current problem.

To fix the economy, start at the bottom & many problems will be solved.

[timm0]

Have you read it to know he doesn't address it?

I haven't, so I have no argument either way.

But it seems to me that a nation-wide program will HAVE to include things like principle because every re-fi I've done requires an assessment. If your value has gone down, you now have a serious problem.

I guess I'm optimistic - while still ignorant of the bill's details - because the issue of home value is a mandatory piece of the refinancing process.

[wpooh]

Yes, value has gone down, THAT is the problem, by over $100,000.

So you see, re-fi with lower interest rates without principle reduction is no solution.

Banks use mark to market accounting to write-off lower asset values (mortgage loans that have lost significant market value), so why not reduce the homeowners' principle?

[Helzapoppin]

What a relief to see someone who finally "gets" how to fix the foreclosure problem. I agree with others about the definition of "credit-worthy," but otherwise this is a plan I will definitely support.

[LiberalDemIda]

If homeowners are on the verge of losing their homes, they're no longer credit-worthy using the "old" rules because they're already behind on their monthly payments.

So again, as two-three other posters here asked, define "credit-worthy", otherwise your plan isn't going to do anything to help against foreclosures.

[mcantwell]

Good Post.

[SD Indy]

With all due respect Mr. Cardoza where is it all going to end? When is the government finally going to allow irresponsibility takes its toll? When people, whether it is people who work in the banking/mortgage industry or irresponsible homeowners take out loans they can't handle, make mistakes, why is it the rest of us who DID know better are the ones that ALWAYS pay the price? I could have gotten myself into a situation, VERY easily, yet I refrained from doing so. It is NOT my responsibility, nor is it ANY other responsible tax payer's obligation to bailout other people's bad behavior.

The stimulus plan that has been approved by the House is bad enough. Too many tax cuts to corporations who are only going to be off-shoring American jobs in 2-3 years tops. Let these industries who are practicing BAD behavior fail. And instead of giving homeowners the tax write-offs for the interest on their mortgages, why not give all renters a rebate on the property taxes they pay in their rents? After all the owner of those rental units get the write-off anyway, we might as well give that money BACK to the person who is actually PAYING those taxes, and it AIN'T the property owner.

[Helzapoppin]

You seem to forget that most people are not financial wizards and that mortgage companies were hard-selling those questionable mortgage terms. I'm sorry, I'm just not one to place the blame on the homeowners.

[reliant1]

Hard sells can be found everywhere - being done to or by someone.

Go buy a magic lamp because of a hard sell and see where it gets you when you complain because the genie turns out to be invisible, blind and deaf.

I bought my land with a 15 year mortgage - starved at first, as in went to bed hungry - but I wanted to own my acres and to build my equity so the sacrifices were supposed to be worth it. I have one year left - never a late payment - and my prop value has been cut in half because of greedy fools or uneducated fools or busy fools or non wizard fools.

Any reason I should be penalized for being a good citizen and doing the right stuff - no one is offering me jack shite as recompense for the hungry nights I spent.

Apparently, my behavior is most unAmerican and should be punished.

I should have taken the obviously loony loan I was offered and then rushed to WalMart to buy a new flat screen TV and take myself out to dinner every night and charge everything on credit.

Since 1 in 10 was the magic number, should I be proud to be in the majority or offended that no one hard sold me on the bennies of being in the minority on this deal?

[intelliwoman]

true most people are not financial wizards and mortgage brokers (all unregulated and unlicensed) were pushing these products to make bigger commissions.

However, people need to take responsibility at some point.

I have watched for 6 years as people come in to close their loans, don't read any documents, don't look at the settlement statement, don't even want copies, they just want their keys (or their check, depending)

I have seen folks yell at title clerks and settlement agents, saying "you're taking too long, just show me where to sign so I can get out of here."

Give people some help, but make them pay back their loans - back end the overdue payments, renegotiate the rate and other loan terms, make the lenders cooperate - BUT LETS TAKE REPSONSIBILITY FOR OUR ACTIONS

[MrsBoomer]

Define "credit-worthy".

[joebiz]

The reason many people are losing their homes is because they were NOT credit-worthy. The got loans that they could not pay, NINA and NINJA loan standar.

The best program is already on the books through the FHA, HOPE for Homeowners, with revenue sharing with the Federal government.

The bank rewrites the loan in line with the market value and the government underwrites and or forgives the difference. Example: You owe 200K on a home worth 150K. The banks rewrites the mortgage at 140K. Now you keep the home, you have 10K in equity, the bank does not foreclose nor have the toxic asset on the books, and the FHA shares in the equity until the home is worth 200K again. It could take 10 years, but so what. All win.

[johnsonc20]

This makes absolute sense. Why are we not seeing this happen now on a grand scale?

[carolinecantoo]

Because it makes cents, not BIG PROFITS.

[intelliwoman]

Actually its mostly because NO ONE REALLY KNOWS WHO OWNS THESE LOANS -

[AnnfromCA]

The key is "credit-worthy." From what I'm reading, nobody is. At least, not by today's standards.

[tenzenz]

I have been blogging for a 4-5% cap on all mortgages for anyone who can AFFORD to continue to make the payments. I am concerned when you use the word "CREDITWORTHY", as many of the people who are at the brink of losing their home are no longer considered "CREDITWORTHY", & if my interpretation of your plan is correct, then I would venture to guess that more than a million people/families would still lose their homes to foreclosure, even though they may still be able to make a mortgage payment if it were reduced to a reasonable rate. My idea goes further by providing these reduced mortgage rates for any homeowner but they do not get any reduction in Principle due to the loss of home value. They will still owe the same principle that is currently on their existing mortgage but they would get the reduced interest rate on the mortgage. This seems to be a fair trade off for both the homeowner & the mortgagee. If a homeowner decides that they do not want to accept this deal, they have the option of staying put with their existing mortgage or walking away from the home, (Voluntary Forfeiture of Property). Please, Representative Cardoza, take time to review the terminology so as not to leave millions without hope/Homes, still. Otherwise I believe you are on the right track

[dctackett]

I Totally Agree.... this is exactly what needs to be done. If my mortgage payment was lowered due to a lower interest rate, I'd have more money to ciculate to other Americans.

I make a point of shopping locally and buying domestically made products, especially from individuals if possible.

The people at the top have most of the nation's wealth, how are the majority of Americans supposed to make it when money isn't circulating their way?...

[SD Indy]

So you are saying that WE, tax-payers who refrained from overextending ourselves SHOULD subsidize YOUR mistake of not obtaining a reasonable interest rate?

[dctackett]

No, I'm not saying that WE, tax-payers who refrained from overextending ourselfes SHOULD subsidize a mistake that I didn't make...

my interest rate IS reasonable and I'm not overextended, thanks for the assumption...

I'm saying that a lower interest rate would be even better... besides, the one thing that you seem to miss is that a loan is not a subsidy.

[111]

Rep. Cardoza, I'm sure this Act that you have introduced will help people who still have jobs but isn't the real cause of these problems the fact that Americans are being laid off in record numbers - for many years. People who are credit worthy today and refinance for 4% will still face foreclosure next year if they lose their jobs.

[phinney]

Hello Mr. Cardoza

I live in "ground zero" and have been shell shocked by all the abandoned homes in my neighborhood. Families there one day, playing with my children, gone the next. Two such families moved out during the night, I assume due to the shame for having lost their home. On one hand I feel terrible for these people, on the other I feel that it was a result of their irresponsibility. I watched as these families had pools installed, bought new SUVs, and big screen TVs. I'll admit, I was jealous. I just couldn't understand how these people could afford all these nice things and my family had to live so frugally. Well, now I know. They could not afford any of those things. They soaked their homes for all the equity. Equity that was just an illusion. These homes were never worth $400,000.

I am not asserting that something drastic does not need to be done to stem this tide. But you are proposing bailing out these irresponsible home owners with better mortgage loans than the responsible people were able to get. It's a bitter pill to take. They will be rewarded for taking out loans then did not read and understand. I do not believe in rewarding bad behavior.

That being said, I commend you for staying on top of this issue.

Thank You,
S.Bodine

[apoyo]

If the banks can wipe bad debt off their books then why can't the rest of us.

[karen-nc]

At first glance, I really like this idea. I wonder how many successful applicants Rep. Cardoza believes there would be and the approximate cost. I believe we desperately need the stimulus package ... but would prefer the HOME act rather than the tax cuts that are included in the stimulus package. As has been writted before, tax cuts do not help the economy ... but this looks like it would have some impact as homeowners would have more money to spend. The other possibiltiy is to use the second half of the Tarp funds -- since the banks don't seem to have used their bailout funds as anticipated, then perhaps this would be a good alternative. Look forward to hearing some discussion of this bill.