The Current State of Dodd-Franik

Jeanne Sahadi

Dodd-Frank: In a 266-154 vote... lawmakers approved... Frank... to let the Federal Housing Administration (FHA) insure up to $300 billion in new loans over four years if lenders agree to reduce the mortgage principal.

To qualify, the lender would have to cut the debt to no more than 85% of a home's current appraised value. If the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed.

While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers. The CBO estimates the FHA expansion program would cost taxpayers $1.7 billion.

"This bill is very time limited and limited in specifics to a subset of mortgages and meant to mitigate a market failure," Frank said during the floor debate on Thursday.... [T]he program is limited to loans for owner-occupied residents... lenders and investors would be taking a loss on every loan... borrower[s] would be paying higher-than-usual premiums to the FHA... would share equity in their home with the government. "No borrower who goes through this process will say at the end of it, 'Boy, that was fun. Where do I buy a ticket to get back on Space Mountain?" Frank said.... If the bill is a bailout for anyone, they say, it's a bailout for communities across the country, which suffer when home values and property taxes go down because of foreclosures...

Comments

[Matt]

" a bailout for communities across the country "

Then communities across the country need to put up a little cash.

Barney knows a lot less about these communities then he lets on. There is a lot of stuff going on in these communities, transportation grids, sewage, schools, industry; and only the communities know the relationship between housing and associated functions.

Communities have to share the risk.

[christofay]

Still the terms are tougher than for the innovative I banks.

Why is this crisis similar to the sinking of the Titanic?

Because the wealthy were saved first.

Not that I'm calling for bail-outs to borrowers who are trapped someplace they shouldn't have been.

It was cheaper to rent.

It's another example of why not to trust the media pimping the latest bubble. The story that we like to tell ourselves is often dangerous to ourselves.

[ottnott]

Just what we need - a government-sponsored incentive for inflated home appraisals.

Somebody will probably do a good business buying loans that have a debt of 85.1-90% of home value, making a small writedown, and then reselling them in shiny new packages of government-guaranteed debt.

[apikoros]

Just to point out that there is a typo in the headline, it's Frank, not Franik.

[apikoros]

Just to point out that there is a typo in the headline, it's Frank, not Franik.