Friday, December 7, 2007
The Detroit News
Voluntary agreements between lenders and borrowers -- helped by government when possible -- should be the key to working out the mortgage crisis afflicting the nation. Arbitrary decrees changing the terms of contracts and taxpayer bailouts of either borrowers or lenders would severely damage the U.S. credit market.
The program worked out in legislation that has passed the Michigan House seems ideal in this regard. Under the legislation, the Michigan State Housing Development Authority would be authorized to sell bonds to support the refinancing of adjustable-rate mortgages to 30-year, fixed-rate housing loans.
Under the House proposal, the Michigan agency wouldn't directly handle individual mortgage refinance deals, but instead buy them from lending institutions. The legislation would encourage such institutions to refinance the adjustable-rate mortgages, which are slated to re-set to higher rates early next year from lower "teaser" rates.
The housing authority would sell primarily revenue bonds -- which would be supported by the mortgage payments -- to private investors. The refinanced mortgages would be insured by private insurers.
The state treasury and state taxpayers would be insulated from the risk of refinancing the mortgages, since public, tax-backed bonds would not be used to finance the loans. But financially stressed borrowers could get some certainty with fixed rate home loans.
Legislation is required to lift the housing agency's cap on outstanding bonds and allow it to purchase the refinanced mortgages. Currently, it is restricted to dealing with original mortgages for lower-income home buyers.
The program wouldn't help everyone in trouble with their mortgages, including people already in foreclosure proceedings. But, as Mary Townley of the housing authority notes, it might help forestall a new round of foreclosures for many homeowners.
President Bush Thursday announced a plan, worked out with lenders, to freeze some adjustable-rate mortgages for five years and help other homeowners refinance to fixed rate loans. Many would be eligible for refinancing, since they would have qualified for prime interest rates even though they are paying down subprime mortgages -- which probably explains why four out of five homeowners with subprime mortgages are still making their payments.
It is in the interest of lenders or those who hold the mortgages to retain them as paying assets rather than have a glut of homes in foreclosure, likely to be sold at a loss. But this should be a voluntary process, and taxpayers should not be on the hook for bailouts either of improvident lenders or unwise borrowers. Government bonds backed by taxpayers should not be used to pay for bailouts of either.
Tightened regulations registering bank loan officers in Congress and licensing mortgage brokers in Michigan should be adopted, but Congress should be wary of bills introduced in committees headed by U.S. Rep. Barney Frank, D-Mass., and U.S. Sen. Richard Durbin, D-Ill.
The House's anti-predatory lending package, critics contend, would wrap banks in so much potential for litigation that it would result in credit drying up for many customers and impose new costs on lending institutions when they need it least.
Durbin's bill would allow bankruptcy referees to simply change the rates on mortgages arbitrarily.
That would reduce the incentive of homeowners to work out a livable payment program with their lenders.
There is still going to be hardship for overstretched homeowners and problems for lenders. But sensible programs should help limit the damage.
The Detroit News
Voluntary agreements between lenders and borrowers -- helped by government when possible -- should be the key to working out the mortgage crisis afflicting the nation. Arbitrary decrees changing the terms of contracts and taxpayer bailouts of either borrowers or lenders would severely damage the U.S. credit market.
The program worked out in legislation that has passed the Michigan House seems ideal in this regard. Under the legislation, the Michigan State Housing Development Authority would be authorized to sell bonds to support the refinancing of adjustable-rate mortgages to 30-year, fixed-rate housing loans.
Under the House proposal, the Michigan agency wouldn't directly handle individual mortgage refinance deals, but instead buy them from lending institutions. The legislation would encourage such institutions to refinance the adjustable-rate mortgages, which are slated to re-set to higher rates early next year from lower "teaser" rates.
The housing authority would sell primarily revenue bonds -- which would be supported by the mortgage payments -- to private investors. The refinanced mortgages would be insured by private insurers.
The state treasury and state taxpayers would be insulated from the risk of refinancing the mortgages, since public, tax-backed bonds would not be used to finance the loans. But financially stressed borrowers could get some certainty with fixed rate home loans.
Legislation is required to lift the housing agency's cap on outstanding bonds and allow it to purchase the refinanced mortgages. Currently, it is restricted to dealing with original mortgages for lower-income home buyers.
The program wouldn't help everyone in trouble with their mortgages, including people already in foreclosure proceedings. But, as Mary Townley of the housing authority notes, it might help forestall a new round of foreclosures for many homeowners.
President Bush Thursday announced a plan, worked out with lenders, to freeze some adjustable-rate mortgages for five years and help other homeowners refinance to fixed rate loans. Many would be eligible for refinancing, since they would have qualified for prime interest rates even though they are paying down subprime mortgages -- which probably explains why four out of five homeowners with subprime mortgages are still making their payments.
It is in the interest of lenders or those who hold the mortgages to retain them as paying assets rather than have a glut of homes in foreclosure, likely to be sold at a loss. But this should be a voluntary process, and taxpayers should not be on the hook for bailouts either of improvident lenders or unwise borrowers. Government bonds backed by taxpayers should not be used to pay for bailouts of either.
Tightened regulations registering bank loan officers in Congress and licensing mortgage brokers in Michigan should be adopted, but Congress should be wary of bills introduced in committees headed by U.S. Rep. Barney Frank, D-Mass., and U.S. Sen. Richard Durbin, D-Ill.
The House's anti-predatory lending package, critics contend, would wrap banks in so much potential for litigation that it would result in credit drying up for many customers and impose new costs on lending institutions when they need it least.
Durbin's bill would allow bankruptcy referees to simply change the rates on mortgages arbitrarily.
That would reduce the incentive of homeowners to work out a livable payment program with their lenders.
There is still going to be hardship for overstretched homeowners and problems for lenders. But sensible programs should help limit the damage.
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