Thursday, August 25, 2011

Two new Fed responses to housing crisis

The new York Times reported yesterday that the Feds are contemplating two separate responses to the national housing crisis. Better late than never, I guess, but nothing that the Feds have done thus far under the guise of helping homeowners seems to have had much positive effect. The first program under consideration involves the transition of large numbers of already foreclosed homes into rental properties. The idea here is to prevent or limit a flood of foreclosed properties into the market, an concurrence that would drive down prices of all houses. The second initiative would involve Fannie Mae and Freddie Mac refinancing many existing loans to today's lower rates. The refinancings they have in mind here are those that wouldn't qualify under normal conditions, either because the borrower has credit problems or because the existing loan is underwater. Unfortunately, this sounds much like other programs that have already been tried without much success. This proposal is very attractive to policy makers, however, because large amounts of refinancing to lower rates would leave the effected homeowners with more money in their pockets and create a stimulus measure that did not require any Congressional approval.

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