Mortgage Rescue Could Cause Unforseen Problems
With Congress appearing eager to help more than a million homeowners facing foreclosure, a proposal aimed at fixing the battered housing market could instead end up as the latest blow to a recovery.
The ambitious plan calls for up to $300 billion in loan guarantees from the Federal Housing Administration. The mortgage contracts will serve to refinance loans that homeowners can’t afford as long as the original lender reduces the principal on the loan to 85% of the home’s current market value.
Supporters of the legislation contend that borrowers would get out from under unworkable debt and original lenders would get back more than they would foreclosing. It would also prevent 1.5 million foreclosures and halt home-price declines since it would keep more houses from flooding an already battered market.
Critics say the rescue plan rewards reckless behavior and transfers risk to homeowners and lenders who were responsible during the housing boom. And, some experts think this is the wrong solution for purely financial reasons.
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