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Is it time for mortgage 'cram downs'?
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A new government program designed to help troubled homeowners isn't helping very many of them, it turns out.
According to Luke Mullins' housing blog on the U.S. News & World Report's web site only 42 homeowners applied for help in the first two weeks of a "Hope for Homeowners" program that began October 1. The program, devised by federal lawmakers last summer, was touted as a way to help as many as 400,000 people get into fixed-rate loans at lower rates.
The problem appears to be that "Hope for Homeowners" involves banks being asked to participate. And banks aren't eager to sign up voluntarily.
This pathetic start to what could be a promising program shows that it may be time for the government to force banks to play ball as the new administration figures out ways to address the housing crisis.
Of all the ideas being thrown around to help the housing crisis in the days following Barack Obama's election, the one that might have the most immediate impact is what is called a "cram down" - which involves a reduction of the outstanding loan balance on a home to reflect its current value.
It seems to me that if some of the bailout money was aimed at such "cram downs," homeowners who are upside down on their mortgages could afford to sell their homes at current prices, matching inventory with demand. This could get the existing-home market moving, reducing the bloated inventory of unsold homes.
And that, in turn, could help jumpstart demand for new homes, which inevitably compete with existing homes for buyers.
Of course, this isn't going to be a popular idea with the banking industry. But given the alternative - more foreclosures, with banks taking pennies on the dollar - perhaps this is the best option right now.
Of all the topics that President-elect Obama is kicking around with his cadre of economic advisors, let's hope that they are focusing on how to make the financial bailout work. So far, the bailout has only helped banks. Wouldn't it be nice if it actually helped borrowers and distressed homeowners?
More stories about the real estate crunch
Home prices decline across 34 states
Homeschooled homeowners surviving housing crisis
Economy affecting home improvement plans
The lasting impact of a short sale
Avoiding foreclosure, but at what cost?
