| Minorities in US hit hardest by housing crisis
In May, Alvin Clavon received a foreclosure notice on the simple, Spanish-style house in South Los Angeles that he shares with his wife and three boys. Clavon bought the place in 2003 with a fixed-rate loan. They painted the walls, fixed the yard and made friends with the neighbors, who let the Clavon boys pick their basil. In 2005, worked with a mortgage broker to refinance his home with another fixed-rate loan. But on the night before signing, the family was offered an interest-only, adjustable-rate mortgage. Clavon, a 35-year-old executive assistant at a bank, said he felt stuck. The ball was rolling, he trusted his broker and so the next day, he signed the loan. "Turned out to be the worst thing I could have done," said Clavon, who like so many others in danger of losing their home to the U.S.
Savings and loan crisis cost taxpayers too much
Economic bubbles that burst get government bailouts. That's historically the way it's worked. The need to stabilize the farm banking system was given as the reason for the mid-80's farm aid. The savings and loan crisis cost taxpayers far more than deposit insurance could cover. Today, it's the Adjustable Rate Home Mortgage bubble that has burst and the Bush administration is attempting to cushion the blow with a plan to help borrowers refinance. 1.8 million ARMs reset to higher rates this year. The Bush administration worries that as many as 1.2 million of these are at risk of foreclosure without help. As was the case with the 1980's farm crisis, the government's plan doesn't bail out banks directly. The mortgage industry will lose $150-400 billion as a result of subprime mortgage losses.
More Risk for Fannie, Freddie?
Currently, FHA can't guarantee mortgages higher than $367,000. The plan, as outlined by Speaker Pelosi, also expands the role of FHA in assisting homeowners in trouble. In addition to raising the loan limits for FHA, Congress will permit more borrowers facing defaults to refinance through the FHA, and increase funding for housing counseling to $500 million to help home buyers who fall behind on their mortgage. Raising the loan limits should allow a larger pool of borrowers to qualify for lower-cost mortgages or to refinance existing mortgages, something that has been difficult to do since mortgage lenders pulled back from nonconforming loans. "This, along with the fact that interest rates have dropped, will give a big kick to the demand side of the housing market," said Nariman Behravesh, chief economist at Global Insight, an economic consulting firm in Lexington, Mass.
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