Congress may take action to strengthen the housing market

Here's an interesting bit of news. Congress may actually take the reins in hand and actually do something to help the housing market, not just the few lenders at the top. According to a report I heard on NPR's Marketplace changes to the bankruptcy law and more oversight of the bailout (TARP) of the banking industry are just around the corner. Of course details are few now but here's what it looks like.

The bankruptcy laws will be amended so that bankdruptcy judges can change the terms of home mortgage loans. They'll be able to extend terms and change rates so that homeowners can make payments within their means. If this works and is implemented soon maybe the 2.4 million foreclosures predicted for 2009 can be reduced drastically. But, someone doesn't like the idea. Guess who? The Financial Services Roundtable, an industry trade group. They claim such actions would drive up costs for all borrowers. Maybe, maybe not. I think it's time we stopped listening only to people and organizations who stand to lose and start thinking about the homeowners too.

By the way, did you ever wonder why banks are willing to let homes go into foreclosure rather than really work out a deal with the homeowners? Me too. Seems that the servicers of the loans get a percentage of all of the fees generated in the process. So, it's in their interest to prolong things.

Common sense (which isn't all that common these days) tells us that a bank would be better off taking less money each month for 2 years than foreclosing on the property with all the costs that entails.

Another Congressional attitude change is demanding more accountability for the money TARP is making available. This same Marketplace report included a conversation with a small bank in the Northwest. They applied for and received TARP money. Guess what? They didn't need it. They even admitted they were well capitalized and were not at all worried about failing. They simply asked for government money while the asking was good.

They did point out that the government received shares of the bank in return. Great. But that's not what the bailout was supposed to do. And it's not an isolated incident. Thousands of banks which are not in any danger have received TARP funds. If you think this situation is ridiculous like I do call your representaives in Washington DC and demand that only banks that need the money (and commit to showing that they'll use it as intended ie lending it) get it.