The Plan to Subsidize Mortgages, aka Let’s Give the Banks More Money


There’s more good news for banks out of Washington this week. Obama’s administration is working on a new plan to subsidize mortgage payments for ‘struggling borrowers’ before things get bad enough to default.

CNN Money reports:

If it comes to pass, the program would blaze a new trail in the federal government’s foreclosure prevention initiatives. Until now, the efforts have focused on helping those already behind in their payments through interest-rate reductions and other loan modifications. The Bush administration had not committed any money to helping borrowers.

So apparently this big plan is to spend at least $50 billion to help borrowers before they get into trouble. Treasury Secretary Tim Geithner said Tuesday the administration won’t give details for a few weeks, but that he and his colleagues have been reveiwing foreclosure prevention proposals with banks, housing advocates, and trade organizations. In order to qualify for the subsidy homeowners are expected to take an affordability test and have their properties re-appraised.  The process sounds expensive doesn’t it? At first I didn’t get why trade organizations were involved, but all that testing and affordability has to be done by someone!

All this to save the banks from taking a loss?

The plan is supposed to help decrease the more than two million foreclosures expected in 2009. And ultimately, less foreclosures should translate to more stable home prices. I get that part, but why not just ban the banks from foreclosing?

The other part of the plan ups the efforts to make homeowners’ monthly payments more affordable by reducing interest rates, stretching out the life of the loan terms,  and deferring principal payments to the end of the loan. Isn’t that how we got into this mess in the first place?

Image Credit: The Truth About, Flickr