Foreclosures Will Gallop Along Indifferent To Results Of Presidential Elections

Posted in Foreclosures, July 10th, 2008 |

The forthcoming presidential elections will have no effect on the present crisis – foreclosures will gallop along indifferent to the results of the elections in November. Presidents do not have the power to wave a magic remedial wand. Despite this Democrat Obama and Republican McCain continue to make loud noises and promises about tackling the foreclosure crisis.

Obama wants the government to play a more leading role than McCain. Both are for the FHA coming forth with more affordable new mortgages for the foreclosure victims. This is the only way the house owners will be able to refinance and shift on to a safer mortgage that will be insured by the government. The monthly payments would also be lowered.

The problem in executing this plan is that the lenders would have to agree to sizeable losses by waiving a chunk of the principal loan. On the positive side by allowing this they will save money by avoiding the costly, time consuming, judicial process of foreclosure. They would avoid the hassle of selling innumerable properties in the buyer’s market of today.

Obama is following the plan laid out by Senator Dodd (D- Conn) and hopes that it will benefit 400,000 foreclosure victims. It will not be required of borrowers to have impeccable credit history to avail of these loans. Obama’s point of argument is that “If the government can bail out investment banks on Wall Street, we extend a hand to folks who are struggling on Main Street.”

If McCain’s plan is executed a minimum of 200,000 to a maximum of 40,000 foreclosure victims will be benefited – they will be able to save their houses. But the help will be available only to those who had credit credibility at the time of taking the original mortgage. McCain comments that this will give every American straddled with a burdensome mortgage to trade it “for a manageable loan that reflects the market value of their home.”

Obama’s plan that is linked with that of Dodd and the FHA will cost about $1 billion. The money would come from the profits made by Fannie Mae and Freddie Mac during the housing boom. McCain’s plan, also linked with the FHA, will need minimum $3 billion to a maximum of $10 billion. This money will be got by diverting spending meant for other heads. Also the government would resort to borrowing.

Neither of the plans speaks of a long-term solution.