Help Is On The Way?

Was it only me who felt a certain sense of irony when President Bush announced “Help is on the way” for homeowners facing foreclosure -- two years after the anniversary of Katrina when he famously promised “help is on the way” to those stranded in the Superdome?  The big difference here, of course, is that, by and large, people in the mortgage mess got themselves into it. For them, the President makes clear he has no sympathy, or help in store: “it is not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”

So, what help is “on the way?”  Nothing immediate, that’s for sure.  Most of the proposals will require Congressional action, and then a Presidential signature, and then administrative implementation. So, we’re talking months, at least, before such things as the “FHA Modernization Proposal,” could have any impact. Here is a little known fact – the President’s proposal to “modernize” the FHA was first made in April 2006. By the time that proposal hashed its way through the Congressional legislative process, the President refused to sign it into law.  Will it fare any better this time around? Your guess is as good as the next guy’s.

The President proposes to reduce taxes on families in foreclosure. This has been a hobby-horse of the National Association of Realtors® for several months. The deal now is that if your mortgage company “forgives” any amount of your mortgage debt, the IRS treats that amount as imputed income and you need to pay taxes on it. This comes as a shock to a lot of people who are used to getting refunds from the IRS because they haven’t planned their tax-withholding appropriately. The President and his Republican friends are in favor of any kind of tax-cutting, so this is an easy one for them and apparently the Democrats think it’s a good idea, too. After all, this will cost the U.S. Treasury just a few million.  Look for quick passage of this one.

The President announced a new “Foreclosure Avoidance Plan.” Basically, this means the two cabinet secretaries most in charge of housing and mortgages will try to get industry to negotiate payment plans and refinancing options for people who are behind in payments.  There are no financial incentives here, but encouraging talk from on high does sometimes move people along in negotiations. Be optimistic.

To help protect homeowners in the future, Federal banking regulators recently issued new disclosure guidelines for lenders, and they continue to consider new rules. This is just down right scary. The disclosure rules already make borrowers' eyes glaze over as their mortgage obligations are being explained to them. The last thing we need is more paper and more rules. Unless those rules could mandate that the disclosures be on one page with one number – the monthly payment!  Maybe make it big and red?

Also, to help protect us all in the future, the government may require mortgage brokers to register with the government. This would seem to be a no-brainer, but it just doesn’t seem to get done. State governments license and regulate real estate sales agents, but because mortgages are part of the national banking system, there is almost no control over who can hold themselves out as a mortgage broker. These people take the most sensitive financial information from prospective borrowers and counsel them on the most important financial decisions in their lives. They should have at least some minimum educational standards and a criminal background check. Let’s hope this one goes through.