The Obama administration’s plan
Mortgage loan modification programs aim to make these signs less popular. Image from Flikr.
Consumers seeking debt relief may be one step closer, if the president has his way. President Obama is set to revamp financial products in an effort to protect borrowers from delinquency and foreclosures. The recession has brought the number of defaulting loans and people losing their houses to record highs. It caused the lending and banking crash, that pushed banks and lenders perilously close to complete financial ruin.
The goal of the government is to make the loan process as simple as possible for consumers. They cite the intricate and wordy loans of the past as the number one cause people defaulted on their loans in the first place. Their vision is to create an easy loan process that works with the customer instead of the lending institution. The Obama administration has taken a lesson from the new 401(k) procedure where a record number of companies are automatically signing new employees up for the retirement savings plan, unless they opt out. The same ease of inclusion that is a characteristic of 401(k)s will hopefully be enacted with home loans.
The financial overhaul
Several weeks ago, Obama unveiled his plan to overhaul the financial regulatory system by creating a Consumer Financial Protection Agency. The purpose of the agency would be to “monitor consumer financial products and revamp the entire home-loan process.” In March the administration began embarking on its $50 billion plan to aid lenders in modifying home loans and lowering payments for customers.
The Consumer Financial Protection Agency is the next step to making housing affordable. As spokesperson Gary Ulbreicht stated, “The initial stimulus for the lending industry was for short-term help. … It’s meant for people who are currently in trouble and need assistance. The Consumer Financial Protection Agency is for long-term change. …Hopefully, it will successfully monitor financial actions of lenders for years to come.”
Critics of the plan
Critics of the plan maintain that its slow start will deter any real change for desperate consumers. Many lending counselors are criticizing the plan, stating that lenders and banks nationwide are reluctant to cooperate. Currently, approximately 50,000 homeowners are enrolled in a three-month trial mortgage modification program under this plan. However, initial goals of the administration were for 4 million households to be on board by this time.
Critics are also saying that the plan is paternalistic and would “restrict borrowers’ options and make loans harder to get and potentially more expensive.” Making loans more difficult to procure would make consumer debt relief impossible. Once that happens, people will stop spending again and less money will be fueling the economy. This situation could create an even greater recession for the entire market.
Still help is needed
Despite criticisms, the reality is that help is needed in the mortgage arena. Although there is a fear that the Obama administration is limiting loan products and thwarting innovation, if they can make loans more affordable for the many homeowners in serious financial trouble, it might be worth it. Once homeowners can get a handle on their mortgages, they will be able to work on complete debt relief.
Possibly the standard “30-year fixed mortgage” that so many critics are decrying is just the thing the nation needs to get back on its feet. Kevin Iverson, mortgage broker for Reed Mortgage Corp., stated, “This country’s home owning pool was built on the 30-year fixed mortgage. …It worked to create a steady base of homeowners who could pay their bills and at the end of that time, owned their homes. Why not get rid of all the diverse and confusing loans and return to the old model? It worked for the country once, why won’t it work again?”
i agree with the previous comment
Well I want all the people who need relief to get help but I don't think Obama's way to help is going to help much.The government needs to come up with a better plan.
Once again, the government is treating the symptom instead of the disease. The standard was the 30 year fixed for a long time for a reason. Before the early 70s, the US used a gold backing for currency. This meant that the available capital for lending was limited, and therefore lending was more selective. A mortgage loan or car loan would therefore have to be geared to be stable and sustainable.
Once we were removed from the gold standard, currency was then made susceptible to inflation, in other words devaluation, so that the appearance of more available lending capital was realized, but the by-product was that the buying power of the dollar began to plummet. For each dollar that is printed, it becomes more and more worthless, and when you pair this with a large, labyrinthine derivatives market, you end with money that is more or less getting created out of thin air, which is used to lend and create debt, the result, of course, is more car loans, mortgage loans, and credit cards available for lending, and an enormous bubble for Wall Street, who get preferential treatment from Congress, who along with a long succession of Presidential administrations, have been on their payroll for some time.
If you want to see an end to this dramatic boom and bust cycle, which we are just going to end up with another one after this one is done, instead of government interference there should be a stop put to fiat currency policy, the Federal Reserve, and also a drastic cut in spending. Return the power to the dollar, and you'll see a vibrant and thriving middle class along with it.