Foreclosures high on Obama priority list |
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The track record isn't good for people who do get mortgage modifications. Of the people who had their mortgages modified early in 2008, more than half were delinquent on their mortgages six months later, according to John Dugan, Comptroller of the Currency. Sheila Bair, chairman of the FDIC and author of an aggressive modification plan for IndyMac bank customers, criticized the comptroller's study for not distinguishing "sustainable modifications versus cosmetic modifications."
Mortgages are not the bailiwick of the incoming Housing Secretary, Shaun Donovan, who most recently was New York City's housing commissioner. Donovan's expertise lies in development of affordable housing in cities. Obama has directed Donovan, Bair and incoming Treasury Secretary Timothy Geithner to come up with a foreclosure-relief plan by March 15.
Obama has made a couple of other proposals to reduce foreclosures. He wants lenders to wait 90 days before proceeding with foreclosure if the borrower is negotiating. He wants bankruptcy judges to be able to modify the mortgages of debtors in Chapter 13 repayment plans -- a power known as cramdown. Lenders had opposed cramdown, but with banks receiving hundreds of billions of dollars in bailout money, they're in no position to fight it.
2. Taxes
Obama has two housing-related tax proposals. One has to do with income taxes and the other has to do with property taxes.
Millions of homeowners pay interest on mortgage debt but don't get tax breaks for it because they can't or don't itemize deductions. Obama proposes a 10 percent tax credit on mortgage interest for nonitemizers. The tax credit would be refundable, meaning that filers could get the money even if they don't owe any income tax.
Obama proposes giving up to $25 billion to the states so they could distribute money to local governments that otherwise would have to raise property taxes to pay for essential services such as police, fire and schools.
3. Closing cost reform
In November, the federal housing department revised the regulations surrounding the good faith estimate of closing costs, or GFE. That's the document that itemizes the estimated fees and taxes on a mortgage transaction. Starting by the beginning of 2010, at the latest:
- The GFE will be standardized into a three-page document.
- Estimated fees will have to be accurate.
- Brokers will have to disclose their compensation.
The National Association of Mortgage Brokers has filed a lawsuit to try to block disclosure of brokers' fees in the form of yield spread premiums.
This particular bit of regulation -- implementing the Real Estate Settlement Procedures Act, or RESPA -- has been surrounded by contention since at least the Clinton administration. Administrations tried to amend the regulations repeatedly, but special interests -- from title insurers to bankers -- thwarted the efforts. The new rules probably could have been released only by a lame duck administration. Now it will be up to the new administration to defend them in court.
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