Newspaper Says Current Measures Aren’t Enough to Solve Housing Mess

April 20, 2008

The San Jose Mercury News newspaper has published an editorial saying that current government efforts to solve the nation’s housing crisis simply won’t get the job done.

The newspaper noted that the feds have been encouraging mortgage companies to do what they can to prevent home foreclosures by renegotiating difficult loans. However, as the newspaper states, the voluntary campaign hasn’t worked so far.

The Mercury News argues that the government and the mortgage industry need to come up with more effective policies in order to prevent a worsening of the country’s economic problems.

Treasury Secretary Henry Paulson recently announced a program named Project Lifeline to help ease the housing crisis. Under the program, 6 of the country’s big lenders agreed to forestall foreclosures for some borrowers for a period of 30 days. However, the Mercury News notes that the program stops short of requiring new terms for loans.

In December, Paulson and members of the mortgage industry announced a program called HopeNow which freezes interest rates on adjustable-rate mortgages. Unfortunately, the program is designed for only a small segment of borrowers.

In 2007, the nation recorded 2.2 million foreclosure filings. A flood of additional foreclosures is expected this year, as a number of subprime mortgages re-adjust to higher rates. Mortgage companies have been leery of changing the terms on home loans because they worry that such an action will prompt lawsuits from those who invest in mortgage-backed securities.

The Mercury News is calling on Congress to alter the bankruptcy law in order to award courts the authority to change the terms of home mortgages. At the present time, bankruptcy courts can change the terms for loans on commercial real estate and family farms, but not on family homes.

If the housing industry fails to turn around and if the economy continues to sputter, Congress may step in to try to change bankruptcy law to make the situation more equitable for homeowners.

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