President Barack Obama is developing a new program to help homeowners having trouble paying their mortgage loans. But the banking industry doesn’t like it, The Wall Street Journal reports.
The plan makes banks pay a fine for mortgage-servicing errors or ease the terms of mortgage loans. Bankers haven’t seen the text yet, but they’re upset with the new approach.
Bankers don’t believe reductions in the principal of loans will do much for homeowners or the housing market in general.
|President Barack Obama
Obama's proposal "would bring with it enormous costs that would far outweigh any potential benefits," Chris Flanagan, a Bank of America mortgage strategist, said in a research note Thursday, according to the Journal.
Some officials want banks to pay more than $20 billion in civil fines for mortgage servicing errors or fund a comparable amount of loan modifications for beleaguered homeowners.
But even $20 billion "would accomplish little," given that homeowners already owe $744 billion more on their mortgages than their homes are worth, Flanagan says.
Asking mortgage servicers to pay the price for all write-downs is unfair unless the administration can pinpoint the "source of harm," Bob Davis, executive vice president of the American Bankers Association tells the Journal.
Housing expert Robert Shiller says prices are headed lower, regardless of government policy.
"My intuition rates the probability of another 15, 20, even 25 percent real home price decline as substantial,” the Yale economist told reporters.
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