Housing crisis worsens as economy weakens
Monday December 22, 2008, 4:12 pm EST
WASHINGTON (Reuters) - The desperate straits of many U.S. homeowners showed in new data released on Monday, suggesting efforts to help them are having limited success.
As the recession throws more people out of work, the rate of re-default on modified mortgages is rising and may worsen as the economy deteriorates, banking regulators said.
After much browbeating from Congress, banks and other mortgage lenders are beginning to do more, to modify home loans so that distressed borrowers can avoid foreclosure.
But the latest figures from regulators raise questions about how modifications are being done and how much they help, even as foreclosure rates hit record-setting levels.
“You have to think that it will get worse before it gets better,” John Dugan, the U.S. Comptroller of the Currency, said in an interview with Reuters.
Critics say most loan modifications up until a few months ago were temporary and not aimed at providing for sustainable payment plans, so it comes as no surprise that homeowners are defaulting.
At the same time, a lenders’ group known as Hope Now warned on Monday that the number of U.S. homeowners seeking help to avoid foreclosure would double next year to 2 million.
The housing crisis and the recession will keep Congress busy when it returns on January 6, 2009, from a holiday break, and preoccupy President-elect Barack Obama after he is sworn in on January 20.
Between January 6 and the inauguration, congressional Democrats are expected to introduce legislation urging more aggressive efforts to help those homeowners who are in over their heads.
A bill being drafted by Massachusetts Rep. Barney Frank might include a sweeping mortgage relief plan from Federal Deposit Insurance Corp Chairman Sheila Bair, a House aide said on Monday.
The bill is sure to insist that more be done to help homeowners under a plan already under way – the Treasury Department’s $700 billion Troubled Asset Relief Program.
That plan, known as the TARP, has given hundreds of millions of dollars in aid to banks and, more recently, to major U.S. automakers. But Frank and other Democrats contend the TARP is doing little to help homeowners.