Shortly after the House passed a controversial bill to try and help curb the rapid amount of foreclosures that have plagued the United States housing market, the Senate is attempting to do the same.
Just as CNN reported on the possible breakthrough, they released the housing data for the month of April that shows foreclosures are up 65% from a year ago. Also, home prices have continued to decline on the mean by 7.7%. Moreover, it is the greatest number of homes to have ever filed for foreclosure in any given month, defeating August 2007.
This data is a solemn reminder of the atrocious conditions the economy is facing. The issue, though, is much more complex than one can imagine. The Senate proposal, sponsored by Christopher Dodd (D-CT) would allow for the Federal Housing Administration to insure refinanced loans if the lender voluntarily marks down the current loan to a more affordable price. It would also allow the two most powerful players in the mortgage market, Fannie Mae and Freddie Mac, to provide more stringent surveillance over loans.
In total, the bill is expected to cost $1.7 billion to taxpayers, and the Republicans contend that is too much money to pay for an investment that is by no means secure. The disparity between the government allotting money to the foreclosure crisis and allotting money to backing JP Morgan to purchase Bear Stearns is quite drastic in favor of the JP Morgan purchase, and the Democratic Party is offering this small price for such a monumental issue.
Despite the pro-Republican stipulations, the more stern oversight by Fannie Mae and Freddie Mac being the most important, the issue has become a bipartisan debate; not over whether there should be foreclosure assistance, at least that much is agreed upon, but over who should receive the assistance and how it should be handled. Democrats make their case much more for the subprime lender and borrower, those who took substantial risks and came out in financial trouble. Republicans argument is that the risk of a moral hazard is much more important than giving everyone loan assistance. They also argue that it is impossible to assist everyone whose loans became in peril once the housing crisis began, and those who should be helped are those with prime rate mortgages to keep the market afloat.
The expectation is that there won’t be a full Senate vote until June, which leaves the crisis up in the air until then. Reelection campaigns will be firing up as well at that time, so the sides could take vastly different shape they are at now. Many Republicans may switch their stance on the issue, especially those in states with the highest rates of foreclosure such as Nevada, Florida, California, and Arizona. These are the markets that had the most enormous booming of home values toward the end of the housing bubble in late 2005.
The next six months are the most pivotal for this issue to be addressed. The Democratic Party will continue to try and push their legislation, which is not completely partisan to begin with, through Congress, much to the opposition of the Republican Party. It appears that the Republicans may be trying to delay the issue as much as they can, most likely to help Presidential hopeful John McCain attempt to argue for his HOME plan, which is very consistent with that of Sen. Dodd’s proposal.
The plunging housing market doesn’t just adversely affect homeowners, with the increase in foreclosures has come a decrease in property taxes collected, showing the chain reaction that may take place if the issue is continually not dealt with. With more towns and cities filing for bankruptcy, there is further strain placed on the federal government to deal with every problem the issue is creating. This shows that the root of the problem lies within solving the housing crisis and until there is a comprehensive solution that takes into consideration the many complex scenarios that it has created, the American economy will continue to suffer as a result.
The American people are evenly split over whether or not the government should offer comprehensive aid to those in need. The poll shows little difference over one taken five months ago. This shows that without a majority outcry for a financial fix to the issue, it will remain in bipartisan hands most likely until the next president is elected. Until then, there are local refinancing hotlines and assistance services offered in most areas where the housing bubble got out of control.
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