Mortgage Rate News

A vote on a mortgage reform bill will not take place in the Senate until next week, but the White House is already threatening to veto the bill if it passes. The National Journal reports on the objections the Bush Administration has to the mortgage reform bill:

In a State of Administration Policy, the Bush administration listed many items that it objected to in Senate Majority Leader Harry Reid’s bill of direct aid and consumer-friendly initiatives designed to help homeowners who cannot afford to pay their mortgages because they took predatory loans. It said many of the provisions are “unnecessary, costly, and counterproductive.”

Much of the protest comes with the possibility of new powers for bankruptcy judges in regards to how they might be able to modify mortgage terms in order to help homeowners avoid foreclosure.

As one might expect, the banking industry is lobbying hard against such measures. Mortgage lenders instead prefer the temporary measures suggested by the Bush Administration that allow them to modify loan terms for a short period of time in order to keep borrowers able to pay.

Tags: Bush Administration, mortgage reform bill, home mortgage loan, mortgage blog,
mortgage lenders, avoid foreclosure, home equity line of credit

Back in November, I wrote about a bill that Congress was considering regarding a temporary change to the bankruptcy law. Right now, mortgage loan terms are not among the types of debt bankruptcy judges are allowed to tinker with. Instead, mortgage loan terms remain with the sole purview of mortgage lenders.

Now on the verge of a vote in the Senate (scheduled for tomorrow) the bill prompting debate. And outrage among mortgage lenders. Mortgage lenders are happy about mortgage revenue bonds included in the bill, as well as some other options that allow flexibility. What they do not like is the idea that bankruptcy judges might be able to alter mortgage loan terms such as payment schedule, amounts and interest rates. Inman News reports on the arguments used against this so-called “bankruptcy cram bill”:

Opponents of the plan say allowing bankruptcy judges to change the terms of mortgages after the fact will raise the cost of borrowing, in part because investors who purchase securities backed by mortgages will have less confidence in their ability to collect payments or foreclose on properties. In addition to the Mortgage Bankers Association, other groups opposing changes to the bankruptcy code include the American Bankers Association and the Financial Services Roundtable.

Others, however, applaud the move, insisting that it will help forestall foreclosures. Those who support the bill say that it is likely to make mortgage lenders more amenable to voluntary programs like Project Lifeline. The specter of bankruptcy judges adjusting mortgage loan terms may encourage lenders to be more accomodating.

The measure would only be temporary, but it could be extended in the future if Congress feels that it would be beneficial to the economy.

What do you think of the idea to give bankruptcy judges the power to modify mortgage loan terms?

Tags: mortgage loan terms, mortgage loan blog, home mortgage loan, modify mortgage loan terms,
mortgage lenders, bankruptcy cram bill, banruptcy judges

One of the big news stories that is somewhat quiet is the fact that the Federal Reserve is offering special rates to banks — including mortgage lenders — for borrowing money. The Fed Funds rate (the rate at which banks borrow from each other) is already rather low, but it hasn’t done much in terms of increasing the liquidity of the money market. So many banks are turning to the Term Auction Facility (TAF).

The TAF allows for a wide range of assets from mortgage lenders and other banks to be accepted as collateral. And there are also rules in place to “protect” the privacy of banks putting up this collateral for loans from the Federal Reserve. But it may not be the best option for the economy at large. The Financial Times reports on borrowing from the Term Auction Facility:

“The TAF … allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take … [this] suggests a perilous condition for America’s banking system.”

Many feel that this is a bad idea, since this is nothing more than moving money around — money that may not actually be there. It is another instance of trying to inject “confidence” into the US economy, rather than actually reforming the practices that led us to this point in the first place.

Another looking problem is stagflation. Stagflation is a term that describes a state of affairs when inflation is in effect, but the economy remains stagnant. Many economists feel that stagflation is a harbinger of recession. The International Herald Tribune reports on the precarious position the Federal Reserve has in trying to control economic outcomes:

The problem is that the Fed is trying to revive the struggling the US. economy by aggressively cutting interest rates. Rate cuts are meant to encourage American consumers and businesses to borrow and spend, which can create enough demand for goods and services to raise prices. If the Fed maintains low rates when prices are rising, the central bank risks setting off a period of even higher inflation.

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Term Auction Facility, US economy, stagflation