Consumer advocates are leading the charge for a federal bailout of the troubled housing industry.
The housing market has been in free fall for many months, the result of plunging home prices and sluggish sales. It’s also become increasingly difficult for prospective homebuyers to purchase houses because of stricter loan standards. Meanwhile, the foreclosure rate has doubled over the past year and additional foreclosures are expected because of the resetting of interest rates on adjustable rate mortgages.
Legislation introduced in Congress would permit bankruptcy judges to change repayment terms on homeowner loans in an effort to help financially-troubled homeowners hang onto their homes. Through the program, judges could lower interest rates, extend the life of the loan, or forgive part of the debt removing the need for debt consolidation. A judge could also lower the principal of the loan to the house’s fair market value.
An organization called the Center for Responsible Lending expects such changes to assist more than half a million families keep their homes. The plan could also save lenders money by reducing their foreclosure costs.
However, the lending industry opposes the legislation, saying that the stricter regulations are unnecessary and that the market should be permitted to correct itself. Still, with as many as 2 million additional foreclosures predicted for the next year, such arguments may hold little sway with lawmakers.
It’s also likely that the national housing crisis will become an issue in the 2008 Presidential race. With so many homeowners facing foreclosure, housing problems may emerge as a key topic for political discussion.
The housing crisis is not expected to lessen until the middle of next year. Economists appear to be divided about whether the housing crisis will lead to an all-out recession. Meanwhile, the Federal Reserve Board has pledged to do its part by doing everything possible to keep the economy humming into next year.
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