Delay in Program to Help Jobless Pay Mortgages - Essay Example

?Case Study Paper This paper has been written keeping in mind the news articles published in journals/newspaper that are as under Alan Zibel reports in Wall Street Journal under the heading “Concern Over Delay in Program to Help Jobless Pay Mortgages”. The news is published in The Wall Street Journal dated March 9, 2011 2. Similar news has been reported by Barbara Barrett, a Washington based correspondent in the Newsobserver in their publication even dated under the heading “Foreclosure Relief Programs at Risk.” Memo Dear President, On reading the recent news that ‘foreclosure relief programs are at risk’, I have been forced to write this appeal on behalf of all unemployed youth who find them now at margin. The news is a catastrophic event for the unemployed persons in the country, particularly for those who are living in their own house and have gone jobless for last few months or more and are unable to pay on their mortgages. Alan from Wall Street Journal reports, “About 3.6 million homes are likely to be lost to a foreclosure or distressed sale by 2013, on top of 6.7 million since 2006, according to Moody's Analytics.” This is really a grim situation in the sense that it is likely to bring a doom to all real estate owners. Why? In a free market, economic principles apply in its full force. One such law is demand and supply. Price remains in equilibrium when supply matches demand. Here the scenario is different. There is huge supply and very little demand. Sources say that the excess inventory of housing units for sale or on rent is estimated to be 1.2 million units at the end of 2010. (Fig 1; Berg, Robert 2010). Housing stock is stated to have aggregate demand of 0.3 million units per year in the country. Simply these figures indicate that there is already a huge build up in the inventory over the demand. If the reported news in above channels is going to be a reality then it is likely that there will be a huge demand supply mismatching, due to impending foreclosures in coming months, in the event government withdraws refinance program for FHA loans, which is a last hope for millions of jobless persons. Each property on foreclosure will be up for sale in auction further increasing the stock of housing and as per the law of demand and supply of economics it will push the housing prices downwards. It will be a double loss to all unemployed persons for they will be out of their own house and the auction will fetch always fewer prices. It will be much lower than original mortgage value. They will be losing not only down payments paid during the mortgage arrangement but also all the installments they paid so far. Their credit worthiness will also be lost in the market place further affecting their chances of getting jobs. Another after effect will be felt by all those who own the house as reduced cost decreases their capacity to borrow further through mortgage. The remedy to such a grim situation is the government intervention as propagated in another principle of economics, “Governments Can Sometimes Improve Market Outcomes.” (Mankiw, Gregory P10) Government can certainly improve market outcomes through appropriate intervention by either providing interest free loans to the unemployed home mortgage holders or stopping foreclosures at least for some more time until some more realistic solution to the issues comes out or until the job situation improves. With this note, I sincerely appeal to look into the matter in national interest as we all are at cross roads and passing through the difficult period; however, appropriate and timely intervention of yours can save us from distress and impending doom. Thanking you, Sincerely, ABC (News articles are copy pasted as per the following) News 1: Foreclosure relief programs at risk BY BARBARA BARRETT - Washington correspondent Tags: banking | business | national | news | politics | real estate Published Wed, Mar 09, 2011 02:00 AM WASHINGTON -- A handful of foreclosure prevention measures run by the Obama administration have become so ineffectual, inefficient and complicated that, according to House Republicans, the programs should be killed outright. The House of Representatives is scheduled to vote this week to get rid of a refinance program for FHA loans and another program, scheduled to begin next month, that would help homeowners with delinquent payments. And this morning, the House financial services panel is expected to vote to ban two more measures: One of them is a massive effort that was designed to adjust up to 4 million mortgages, but has so far successfully tackled just half a million. The other steers money to communities through the Neighborhood Stabilization Program. The Treasury Department and many Democrats argue that the programs - though flawed - are fixable. And consumer advocates say the measures offer the last, best hope for many struggling families. "It's all we have," said Hazel Mack-Hilliard, director of the mortgage foreclosure project with Legal Aid of North Carolina. "To have nothing and just say 'let the lenders do it,' that's worse than nothing." Aims unmet Altogether, killing the programs could save the federal government a few billion dollars. But the real problem, says U.S. Rep. Patrick McHenry, is that families sometimes get hurt more than they're helped. McHenry, a Republican from Cherryville, will read from constituents' stories at Wednesday's committee meeting, talking of how homeowners were strung out on the hope of receiving mortgage modifications, only to be told eventually that they don't qualify. In the meantime, he said, they've exhausted their savings, killed their credit and lost a place to live. "It's just heartbreaking stuff," McHenry said. He has sponsored the HAMP Termination Act, which aims to kill the Home Affordable Modification Program. Through that program, the government pays banks and other loan servicers to voluntarily adjust mortgages. But of nearly $30 billion allocated to the mortgage modification program, only a billion dollars has been spent. Neil Barofsky, the special inspector general for the modification programs through the Troubled Asset Relief Program, told Congress last week that "HAMP has been beset by problems from the outset and, despite frequent retooling, continues to fall woefully short of meeting its original expectations." He blamed the Treasury Department for refusing to adopt "meaningful goals and benchmarks" for the program, but stopped short of saying the mortgage modification program should be shuttered altogether. Treasury Secretary Timothy Geithner told Congress in separate testimony last week that he wants to keep the program. The House also is scheduled to begin debate today on two measures - to kill the FHA Refinance Program and the Emergency Mortgage Relief Program. The first, designed to refinance homes purchased under FHA loans, has resulted in the refinancing of just 22 homes as of the end of December, according to the Congressional Research Service. The second, meant to help homeowners facing delinquent payments, is scheduled to begin next month. Read more: http://www.newsobserver.com/2011/03/09/1039527/foreclosure-relief-programs-at.html#ixzz1GHXAb5RC News 2: Concern over Delay in Program to Help Jobless Pay Mortgages By ALAN ZIBEL The Obama administration has delayed for several months the launch of a $1 billion effort to help unemployed homeowners avoid foreclosure, sparking fears the program is running out of time to help many borrowers. Congressional Democrats mandated creation of the program, dubbed the Emergency Homeowners' Loan Program, as part of the Dodd-Frank financial overhaul bill enacted last summer. It aims to help about 30,000 unemployed homeowners continue making their mortgage payments by providing zero-interest loans of up to $50,000, which can be forgiven over five years. The administration has not yet launched the program because officials are still hashing out agreements with state agencies, a nonprofit network of housing agencies, and financial processing firms that will help run it. The delay highlights the difficulties of establishing government programs to assist struggling homeowners as the housing crisis continues as a drag on the broader economy. Both the Obama and Bush administrations launched numerous programs aimed at helping borrowers avoid foreclosure, with often disappointing results. Advocates for the unemployed, however, are getting impatient. They note that homeowners need to be enrolled by Sept. 30 to participate in the EHLP and worry that many won't have enough time to sign up, especially in states that have never run such a program before. "Speed is of the essence," said John Dodds, director of the Philadelphia Unemployment Project, who has been pressing officials to launch the program more quickly. "It really is a shame that there is so little time." The Department of Housing and Urban Development initially expected to launch the program at the end of last year but now say it will start sometime this spring. Read more: http://online.wsj.com/article/SB10001424052748704132204576190670257436388.html?mod=googlenews_wsj Bibliography and References Fig. 1 References: 1. Berg, Robert 2010. Housing Inventory Data Online from http://www.woodbiomass.com/woodbiomass/news/North-America/Wood-Energy/RISI-VIEWPOINT-UPDATE-US-Census-fourth-quarter-2010-housing-inventory-data.html [Accessed on 3/11/2011] 2. Mankiw, Gregory N. Principles of Economics, P 4-13 Read More