Debate on Government’s Foreclosure Plan Rages On

November 19, 2008 by Donald Hanz on General

Washington is still unsettled as to how to handle the foreclosure crisis.

Last November 11, the administration publicized the government’s $ 700 billion plan to refinance delinquent loans controlled by mortgage companies, Freddie Mac and Fannie Mae. The already passed bill, a modification of the existing Hope Now program, expects to eventually decrease by 38 percent the monthly mortgage expenses of hundreds of thousands of homeowners who are at least 3 months behind on their payments, and are at risk of foreclosure.

The said plan to reduce foreclosures is not without its detractors however. Despite its merits, critics say that the scheme would only help a small portion of homeowners, and not the millions of borrowers whose loans aren’t managed by the two giant government-controlled companies. Moreover, they point out that the foreclosures would continue to be on the rise until housing prices become stable, and both lenders and borrowers could feel financial secure again.

Barney Frank of the House Financial Services Committee holds it unlikely that federal tax aid will support homeowners whose loans may be salvaged. These property-owners are those who have loans that should never have been made in the first place. For him, government should just use the money to persuade institutions to reduce the loans of borrowers facing foreclosure.

Meanwhile, Democrats want Treasury Secretary Henry Paulson to spend the money for a bigger mortgage-rescue plan. Paulson himself is doubtful of the idea as another mortgage aid would require direct government spending.

Political tensions have also been arising between those who think that the government should leave the bulk of the problem to the private sector, and those who insist that the situation is for the government to solve.

Paulson says that the Treasury has been exploring other options to alleviate the foreclosure problem, one of which was proposed by Federal Deposit Insurance Corporation head Sheila Bair. Bair’s mortgage program would require Treasury to spend at least $50 billion.