Barack Obama said today that much of the remaining TARP funds must be used to help home owners:
WASHINGTON - President-elect Barack Obama signaled a clear desire Wednesday to use a significant portion of $700 billion in financial bailout funds to stanch foreclosures by helping struggling homeowners with their mortgages.
"The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes," he said.
msnbc.com
More, after the fold.
Obama said helping people pay their mortgages has to be a component of the rescue fund.
"We've got to start helping homeowners, in a serious way, prevent foreclosures," he said
msnbc.com
I think this is the right direction. Now, it is a little unfair to bail out people who bought big houses they could not afford with exotic mortgages, while others lived within their means, but that small unfairness may be necessary to prevent a deeper recession/depression. Home values need to be stabilized at some point. And when foreclosures happen, they sink the prices of all property in a neighborhood. I agree that property did cost too much and many working people were getting frozen out of the market. But without more stability, the downward spiral keeps going, jobs get lost, demand decreases, jobs get lost, etc. In addition, the human cost of these foreclosures is staggering. There is both an economically pragamatic and moral aspect to doing this.
I think Obama's signal is correct. We may have to wait until January 20, 2009, but there is roughly $350B (or more) out there that can be used. We should formulate a good plan to use it.
I'm no expert, but this might be a good starting point:
Publicly breaking with the Bush administration's official stance, the Federal Deposit Insurance Corp. proposed Friday to use $24 billion in government funding to help 1.5 million American households avoid foreclosure.
The FDIC posted the plan on its Web site two days after Treasury Secretary Henry Paulson rejected the idea of using money from the $700 billion bailout of the financial industry to pay for such a proposal. A Treasury spokeswoman declined comment Friday.
The agency's plan would guarantee 2.2 million modified loans — mainly risky loans made to borrowers with weak credit or small down payments — through the end of next year. Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.
"If we can avoid those foreclosures, then you will get more stability in the housing market," said Michael Krimminger, a senior adviser to FDIC Chairman Sheila Bair, said in an interview Thursday.
snip
The FDIC says the government's backing will make the lending industry more willing to modify loans because taxpayers will absorb half of the losses if the borrower defaults again. Also, loan servicing companies, which collect and distribute mortgage payments, would be paid $1,000 for each loan they modify.
Even if a third of borrowers default again on their modified loans, 1.5 million homes would still be saved, the FDIC says. Under the agency's plan, monthly payments shouldn't total more than 31 percent of homeowners' pretax monthly income.
FDIC proposes own bailout plan for at-risk homeowners, 11/14/09
Whatever plan is chosen, it is better to go big and try to make a huge difference now, thereby preventing, hopefully, a deep depression, than to be timid.
I don't think Obama will be timid and I think he's going in the correct direction in his thinking. The financial markets are relatively stable. Now we must help the auto industry and home owners.