Feds a planning on bailing out 3 million homeowners | Kevin Colby: News and Political blog

Feds are planning on bailing out 3 million homeowners

The banks, brokerage houses, insurance companies and automakers all got theirs, so why shouldn’t homeowners?

Well listening to Clark Howard yesterday, he says that the government is planning a federal bailout of some 3 million homeowners who are delinquent on their mortgages. So here is the scoop:

Negotiators for the Treasury and Federal Deposit Insurance Corp. are nearing agreement on a plan to have the government guarantee the mortgages of millions of distressed homeowners in what would be a significant departure for the federal rescue program, which has so far directed relief exclusively to banks and other financial institutions.

The plan, which sources said could cover as many as 3 million homeowners in danger of foreclosure and cost between $40 billion and $50 billion, would go well beyond previous government and private-sector initiatives. Critics say these have attracted too few lenders or offered too little aid to homeowners to stem the foreclosure crisis.

This is the first truly organized attempt to assist those facing foreclosure. The fairness issue aside, this is an effort to provide some level of base support for homes around the country. A foreclosure will reduce the values of neighboring homes by around 1%. That’s partly because banks do such an atrocious job of managing real-estate owned properties (REOs). The idea of providing a bailout to homeowners is to do a cram-down, with the loss split between taxpayers and the bank. We’ll see how it works out on the ground.

The reality is that we have too many houses. The best guesstimates put the figure at anywhere between 3 million to 10 million houses. So we have a ways to go before we burn through that excess. But housing markets that have been going down in value will start to stabilize. It took us several years to get into this mess and it will take us several more to get out. Personally, I’m not for bailing any of the banks, corporations or homeowners out. Just let it all burn to the ground! Then maybe as a country we will learn our lesson. Read the full story on the bailout.

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