ML-Implode News - Obama Commits $275 Billion To Slow Foreclosures

The plan also will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie, according to a White House fact sheet. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised, the announcement said.

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The Obama plan will use $75 billion from the $700 billion financial bailout fund to match reductions lenders make in interest payments that lower borrowersâ€™ payments to 31 percent of their monthly income. Under the program, a lender would be responsible for reducing monthly payments to no more than 38 percent of a borrowerâ€™s income, with government sharing the cost to further cut the rate to 31 percent.

Note that Treasury is now going to buy TWICE as much preferred stock in the defunct housing institutions now -- as we said from the get-go, this is going to become a large (if not unlimited) money sink. We are for loan modifications that adjust principle, but we are against measures that continue to distort the housing market by inflating home prices or suppressing interest rates. The big problem is that Treasury is willing to give virtually unlimited amounts of money to banks, but it won't force them to take the write-downs they should take to make these modifications happen.

We reckon this could all be ended very quickly if a requirement of receiving TARP funds was that governments must make principal write-downs when borrowers opt for a modification. But of course, that's not a requirement.

Relevant:

Obama Commits $275 Billion To Slow Foreclosures

Wake up at 07:38 2009-02-19 said:

sojeff at 08:40 2009-02-19 said: