Much has been made of our government’s efforts to help stem the foreclosure crisis, but little seems to be actually helping the people who need it. Two articles in the April 30, 2008 Sunday business pages of the New York Times report on two such failed attempts.

The first measure Congress passed to assist homeowners back in February was included in the economic stimulus package. Rules were instituted to increase the ceiling for mortgages that used to be considered jumbo. In other words, for people whose mortgages were more than $417,000, they could refinance from a jumbo mortgage (which are usually more expensive) to a conventional mortgage. Although it varies by location, in some cities the ceiling was raised to $730,000. Unfortunately, the program has been a failure, since lenders have not actually lowered the rates as lawmakers had expected, and mortgage brokers quoted in the article say they are unable to find lenders willing to utilize the new program.

In the meantime, the Federal Housing Administration (FHA) has been touting the benefits of FHW Secure, a program to help alleviate foreclosures. The New York Times reported, however, that of the 150,000 the FHA claims to have helped, only 1,729 were actually behind in their mortgage payments. In 2008, while FHA Secure will assist approximately 400,000 homeowners refinance their mortgages, only 4,000 of those are expected to be delinquent in their payments. In other words, the FHA will help, but the assistance that is available is largely going to those borrowers who don’t really need the help.

At Resolve Legal, we are doing our best to keep up with the dizzying array of temporary fixes and band-aid solutions proposed by various agencies in charge of monitoring our country’s financial institutions. If we are able to discover any that actually will help the people most in need, we’ll be sure to let you know.

The House of Representatives finally passed legislation this past week to try to help homeowners facing foreclosure. The proposed bill is quite mild, and would likely prove to be totally inadequate. The Office of Budget Management estimates that the bill could help 500,000 people prevent foreclosure, but over 2.5 million people will likely lose their homes to foreclosure this coming year.

Nevertheless, even though Banks would act voluntarily under the proposed legislation, and even though it does not include the modifications to bankruptcy law that the administration has vehemently opposed, President Bush still promised to veto the bill if it survives the Senate.

Rep. Barney Frank, the chair of the Financial Services Committee, has been working very hard to compromise on legislation so that something can be done to help distressed borrowers. He is obviously becoming tired of the whole process. The New York Times reported (May 7, 2008) that he reacted to the veto news by noting that President Bush seems to be abandoning troubled homeowners:

“I think it would be a declaration that he’s stopped trying to govern,” Mr. Frank said, “as if the president were saying: ‘I’m through governing, let’s just yell at each other for the rest of the year.’”

Congress has been playing politics with the mortgage crisis, and so far at least, nothing at all has been done to alleviate the stress on middle class homeowners since the jumbo ceiling was raised a few months ago. One problem with this whole mess is that there are many causes and there will not be any one solution that will solve it. What do I mean by that? Assume that the current crisis was brought on by an increase in mortgage defaults, particularly by “subprime” borrowers. One way of looking at the issue is that too many people borrowed more money than they could afford to repay, and they got inflated appraisals to support those loans, and they exaggerated their income to convince lenders to give them more money. Further, most of these loans were on adjustable rate mortgages, and now that the adjustments are being made, they can’t pay.

On the other hand, what were the lenders doing over the last few years? Lenders were competing vigorously for exactly those borrowers, and then they were packaging those loans together and selling them to Wall Street. At the top of the food chain, investors were looking for a return on their money higher than they could get in traditional markets, and so they were willing to believe that no matter how much those interest rates were adjusted, the borrowers would continue to pay. Like the borrowers, they did not stop to think about what they could really afford to lose.

Over the next few months, we will look at the underlying causes from both the borrowers’ and the lenders’ standpoint. Many words have already been written about the subprime mortgage crisis, but as I talk to people, I find that few of those words have illuminated the topic for the average reader. Most people I talk to about this issue want to understand the causes and implications for their own finances, and for the impact the mortgage crisis is having on our country’s economy. We’re not entirely sure that we can do better, but we are going to try! Keep visiting, and let us know how we’re doing.