Mortgage Rate News

There have been a lot of programs and plans announced over the past year or so meant to prevent foreclosures and stop their effect on the economy. One of the latest programs is one introduced as the Neighborhood Stabilization Program. This program is rolled out on the federal level, and aims to target areas that are prone to foreclosure and work on changing neighborhoods around. Real Estate Pro Articles describes the main thrust of the program:

The plan for these areas is to buy out units that are considered soon-to-be foreclosures. The units will then be handed over to non-profit housing organizations. Such associations will then be tasked to rehabilitate the properties. The repossessed houses will be made available to qualified buyers.

It seems like a pretty good idea. I like how the plan focuses on:

1. Buying homes before they enter foreclosure.
2. Fixing up homes and neighborhoods.
3. Qualified buyers will be screened for the properties.
4. It helps non-profit housing programs.

Alone, though, this program probably won’t be enough. Coordinated efforts are needed to fix this housing crisis. And, once it works its way through the mortgage market and the economy, sensible regulation is needed to prevent it from happening again. Unfortunately, many programs meant to reduce foreclosures only delay them for awhile (like the mortgage rate freeze enacted almost a year ago). Additionally, many of the efforts, though well-meaning, are a disconnected bunch of policies. Only a few bright spots have been seen, and they are disjointed, so they are not working in tandem to help the mortgage and housing market.

In any case, there are some good ideas out there. But I fear that the best solution is to let the housing bottom come as quickly as possible, and then let the whole thing work itself out. Oh, and people need to have a change in mind-set, harking back to the days when they bought what they could afford, and were reasonably satisfied with a modest home.

With all the largess flowing from Washington, it’s starting to become difficult in terms of figuring out where money is going (no one’s worried about where it’s coming from, at any rate). And I know everyone’s all about the Citi bailout this morning, but another stimulus may be on the way. This one may have more of a direct impact on “ordinary” folks — or at least first time homebuyers. The new stimulus is one suggested by the National Association of Homebuilders (NAHB).

Trying to fix the housing market first

As one might guess, the National Association of Hombuilders is fairly certain that the government is throwing money at all the wrong thigns right now. Instead of fixing the housing market and trying to get things back on track with homeowners and home prices, the government continues to chuck money, through bailouts, at a number of companies that made downright poor business decisions. Instead, suggests the NAHB, the government should aim at creating measures to help get the housing market moving, mainly by:

1. Offering a tax credit that is larger than the $7,500 offered right now to first time homebuyers. Also, NAHB doesn’t think that the credit should be paid back.
2. Subsidy for mortgage interest rates that would, according to Mortgage News Daily, “target interest rates on 30-year fixed-rate government-backed mortgages for conforming loans that would bring rates down from the current 6.0 percent range to around 3 percent for those made in the first half of next year and 4 percent for those originated during the third and fourth quarters of 2009.”

It’s an interesting thought — focusing on people who might be interested in buying. However, it does not address some of the problems facing the economy right now. Like, you know, foreclosure. Instead, the NAHB plan runs the risk of putting more unoccupied homes out there, without doing anything to forestall foreclosure. The other issue is that first time homebuyers can’t take advantage of any of this as long as they can’t get approved for mortgage loans.

There are a number of plans being proposed right now with regard to how to fix the mortgage mess by preventing foreclosures. Unfortunately, a lot of the ideas circulating out there are variations on a familiar theme: Throw money at a problem and hope it goes away.

Someone else is coming out with a new idea, though. At Middlebury College, an economist named David Colander is suggesting that everyone be issued foreclosure vouchers — even those who are not in danger of foreclosure. RealEstateProArticles.com has the details of the foreclosure voucher plan:

The key element in Colander’s plan is the use of foreclosure vouchers. The government would allot foreclosure vouchers to taxpayers according to income levels, with the lowest earners receiving the biggest voucher amounts and with people in certain high income levels excluded from the scheme.

The vouchers are foreclosure vouchers and therefore can only be used in two ways: to buy foreclosed properties or to pay mortgage loans to save homes from foreclosure.

For recipients who cannot use the vouchers because they are not facing foreclosures or are not interested in buying foreclosure properties, they can sell their vouchers on the secondary market at a discount. The discounted vouchers would attract investors to the foreclosed housing market, creating housing demand, restoring home prices and ultimately contributing to the nation’s economic recovery.

I admit that I find this suggestion intriguing. It could, in theory, lead to additional real estate investing in foreclosed properties, and stop some foreclosures from happening altogether. And the foreclosure vouchers would help reduce the amount that buyers would need to borrow, making it easier to get financing for the remainder of the purchase amount of foreclosed properties.

It certainly seems like a win-win for everyone involved. Of course, these plans have various Unintended Consequences that can throw the whole thing off track. But I do like that it’s something different. After all, it is supposed stimulate investment, and it offers potential rewards to those who have been making prudent financial choices.