New proposal to help underwater homeowners

Today or tomorrow all 50 states are expected to sign off on a $37 billion settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial that will provide compensation to homeowners who were harmed with nefarious foreclosure practices. 

This deal between the big banks and the states’ attorneys general will result in mortgage principle reductions, refinancing at lower rates and cash to the wronged homeowners.

While this is good news for those who suffered and will give some help to the economy from an influx of money at the local level, we need to help the rest of the underwater homeowners in this country and put the final nail in the coffin of this down-economy.

In his State of the Union address last month President Obama said:

I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.

But with the GOP in Congress unlikely to allow any Obama-proposal that will help improve the economy before November, a New York Times editorial proposes another path to helping homeowners struggling to pay mortgages while invigorating the new housing construction market.

According to the editorial the Treasury Department can, without Congressional approval, give stronger financial incentives to Fannie Mae, Freddie Mac and private banks to help homeowners by reducing the principle on underwater home loans.

If a politically paralyzed Congress is not going to take action to accelerate our economy by reducing foreclosures and thus jump-starting the home building industry, then the Administration must do what it can on its own.