Filed under: Good news, Housing, Recession
Imagine if most of the homeowners whose mortgages are bigger than their home values got a hand from the government. It may actually happen. According to The New York Times, “With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater.”
Helping these people out will nearly certainly cost taxpayers money because the federal government will have to take on the danger of refinancing most of these mortgages. The FHA might expand its program to insure mortgages so homeowners can replace adjustable mortgages with lower fixed-rate plans. The government could also buy a big number of delinquent mortgages and grant homeowners to replace them with ones that have lower monthly payments.
The Feds are damned it they do and damned if they don’t. A full collapse of the housing market could cause a financial catastrophe and pull many financial institutions under. The government might have to support huge banks with special lending from the Fed. That will cost taxpayers money as well.
If the government creates a true safety net to reduce foreclosures, it might not lose a lot of money at all. If home prices become more stable, defaults will fall and home prices should begin to move back up. The Feds might have lost very tiny capital in the process because people will be able to handle their obligations and FHA insurance won’t be needed to cover failed mortgages.
No one knows what will happen, so it is a crap-shoot either way.
Douglas A. McIntyre is an editor at 247wallst.com.
Entries (RSS)