Democrats Agree On Mortgage Insurance Plans

While the democrats may not agree on other issues, they are certain about one thing: having the federal government insure hundreds of thousands of mortgages to help revitalize the housing market after the subprime mortgage crisis. This applies to negligent borrowers as well, with programs to stop the rise of foreclosed homes.

The Democratic Plans To Abet Mortgage Insurance

Two percent of home loans were in foreclosure at the end of last year, which is, according to the Mortgage Bankers Association, double the average rate over the last three decades. As a result, Democrats are aiming to create larger government programs to curtail increasing foreclosures.

House Financial Services Committee Chairman Barney Frank (D., Mass.) and Senate Banking Committee Chairman Chris Dodd (D., Conn.) had very different plans, though Dodd recently agreed to push legislation that would create a program through the Federal Housing Administration instead of establishing a new agency. FHA insurance funds cost could up to $20 billion. “We’ve got to be moving more aggressively here,” said Dodd. “Cautiously…but aggressively.”

The Democrats’ proposal directs the FHA to insure qualified loans after lenders wrote down a portion of the total amount owed on the loan so borrowers can more easily pay. These plans could let the FHA insure somewhere between $300 billion and $400 billion in refinanced mortgages. It forces lenders to take some loss but not nearly as much as they would with foreclosed homes. The proposal also helps homeowners who owe more money for their loans than the houses are worth.

What The Republicans Say About Mortgage Insurance

The White House has already expressed circumspection about congressional proposals for publicly funded plan to “rescue” mortgages, due to the cost and that the plans would help lenders more than homeowners. Spokesperson Tony Fratto said, “we’re focused on policies directed at the homeowners and we’ve been clear in what we oppose -- using taxpayer dollars to bail out lenders, investors and speculators.”

President Bush said recently in a speech on the economy and housing market that while the government should help, it cannot overreact, since government intervention can have unexpected consequences. He is pushing through a proposal for federal assistance to lower income homebuyers. Furthermore, Bush is trying to reassure the nation that the U.S. economy will pick back up, part of that helped by a $160 billion stimulus package.

Which Mortgage Insurance Plan Will Happen?

Republicans have yet to endorse the Democrats initiative, though Frank has been talking to different federal bank regulators on the best way to build the new program.

Both Democrats and Republicans recognize the issue. Housing prices drop, therefore homeowners face the prospect that their homes are worth less than their mortgage debts, which tempts them to walk away from their homes. This in turn increases supply while prices continue to plunge. Although both political groups want to assist homeowners and turn around the housing market, the Democrats insurance plans are a more united effort to fix the economy, starting with real estate.