Legislation to Solve the Sub-Prime Lending Debachery

Subject: Jane Sasseen, “The Plans to Save Underwater Loans, Business Week, April 14, 2008

By now, most of us have heard some of the horror stories of those facing the housing crisis. Many families are at risk of losing their homes, due to faulty loans, often made by unlicensed lenders, rising interest rates, and a sharp decrease in property values. And while the word foreclosure has a negative connotation, many of us will never truly experience the devastation it is to lose one’s home. It seems the government not only realizes the tremendous impact that all of this has on the economy, but also to the individual. The article “The Plans to Save Underwater Loans,” by Jane Sasseen, informs us of some steps being taken in Washington, and legislation that is underway, that will hopefully bring aid to all of those suffering, from home and business owners to the lenders themselves.

Since the recent $29 billion bailout of BearStearns by Washington, it seems the Bush

Administration is changing its tune when it comes to using taxpayer funds to aid homeowners. In fact, there are a few different proposals on the Congress floor at this time that are intended to provide relief to the housing sector. Senators Christopher Dodd and Richard Shelby are backing a housing stimulus package that includes a $7000 tax credit for those buying a home in default or foreclosure, a $10 billion increase in the value of bonds a state can issue to help borrowers refinance, and tax-credits for money-losing homebuilders and other businesses. There is also separate legislation underway to directly aid struggling mortgage holders. Not to be forgotten are the roughly 9 million homeowners considered to be “underwater.” Underwater is the term given to those whose houses are now worth less than their mortgages. While many stuck in this situation would like to refinance, they are unable to because of the negative equity in their homes. Currently there is a bill, backed by Representative Barney Frank, where the government would provide $300 billion in guaranteed newer, cheaper loans, to help these people out.

The plan for newer, cheaper loans doesn’t come without a hitch. Prior to the issuance, the home would be re-evaluated at current market price, and then homeowners would receive a new mortgage for 90% of current market value, while the government