Photos
Dr. Kalinda Rose Stevenson
Does A $700 Billion Bailout For Banks Prevent Foreclosures For Homeowners?
Welcome back!
The top item in the news in the last week has been the financial crisis facing the banks. Yesterday, Washington Mutual was seized by the FDIC. This is the largest bank failure in United States history. WaMu was then sold to JP Morgan Chase, to further consolidate the banking industry into a handful of giant banks.
“As the debate over a $700 billion bank bailout rages on in Washington, one of the nation’s largest banks – Washington Mutual Inc. – has collapsed under the weight of its enormous bad bets on the mortgage market.”
“The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift’s banking assets to JPMorgan Chase & Co. for $1.9 billion.”
“Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country’s history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.” Government seizes WaMu
Meanwhile, the debate continues in Washington about a $700 billion bailout for the banking industry to buy up bad mortgages. One of the issues at debate is whether homeowners who are facing foreclosure because of bad mortgages will receive any part of the $700 billion.
In an outstanding article, “It’s The Empty Houses, Stupid,” Bob Sullivan asks the question why the government bailout is focusing on the banks that hold the bad mortgages and not the homeowners who cannot pay the bad mortgages.
“In case anyone has forgotten the core of the current economic crisis, here’s a reminder: empty homes, both present and future. Empty homes are behind all the supposedly worthless mortgage-backed securities that no one wants to buy on Wall Street. Fear of the coming avalanche of empty homes — what the Center for Responsible Lending calls the “tsunami of foreclosures” — has made Wall Street’s mortgage-related paper nearly worthless.”
“It seems that filling those empty homes by dealing with foreclosures and stoking demand to buy homes should be the first order of business. So why — as we discuss the most dramatic government intervention in nearly a century — is there only passing mention of all these vacancies?” It’s the empty houses, stupid
Sullivan makes the point that there are two interlinked crises. The liquidity crisis affecting the banks and the housing crisis affecting homeowners. At this point, it seems as if the bailout will benefit the banks, but homeowners are on their own. He cites bankruptcy experts and consumer advocates who make the case that the simplest and fairest solution would be to amend bankruptcy law, to allow bankruptcy judges authority to modify mortgages, as they can modify payments for other types of loans.
“‘This was kind of a game of chicken and I’m afraid it looks like the consumer advocates in Congress are the ones who blinked,’ said Adam J. Levitin, a bankruptcy expert at the Georgetown University Law Center.”
“Details of the not-quite-completed-bailout-plan are still emerging, but by all accounts it will not include the most obvious and direct tool to stem the empty house problem: adjustments to bankruptcy law that would allow judges to modify the mortgages of at-risk homeowners.” It’s the empty houses, stupid
But as the current negotiations stand, there is no provision for homeowners facing foreclosure to receive any direct help from the massive government bailout for the big banks.
The simplest way to prevent the coming avalanche of additional empty homes — and thereby make those asset-backed-securities have some real value — is to prevent people from getting kicked out. It’s stunning that $700 billion is about to change hands with no direct plan for keeping them in their homes. It’s the empty houses, stupid
Dr. Kalinda Rose Stevenson
Find out how the current mortgage crisis is a direct result of a banking system that allows banks to make money out of thin air in No Money Limits For Real Estate Investors at www.NoMoneyLimits.com.
No tags for this post.Related posts
Syndicate
Subscribe to this site's RSS feed.