Tuesday, October 7, 2008
Local governments and American citizens hope expectantly that the financial bailout plan may do something to stem the tide of foreclosures that runs like toxic waste through many American localities, especially in low-income areas. (And by the way, did anyone really think that passage of the bailout plan would suddenly make lenders, who moved in herds through the housing bubble, to suddenly change course and start being much looser with credit?) Bad news continues to flow in: A report suggests that incomplete data from rural areas greatly underestimates the number of housing foreclosures across the nation.
Although I haven’t read the bailout legislation (allergies to pork, don’t you know), reports are that it will do little to force refinancing of mortgage loans to avoid foreclosures. One obvious obstacle is that the federal government is purchasing merely shares of mortgage-backed securities, not the full mortgages themselves, which makes it more difficult for government singlehandedly to “bail out” borrowers who are in over their heads.
But it seems safe to say that Democratic leaders are bound to push for legislation that would somehow re-write mortgage loans to try to avoid foreclosures. While this would be an unwanted precedent as a matter of “moral hazard,” and it might result in a decrease in cash flow to creditors in a time when cash flow is desperately needed, it might help local governments in their land use plans and management. Stay tuned …