Rep. Barney Frank: No "Free Rides" for People Facing Foreclosures
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House Committee on Financial Services Chairman Barney Frank noted yesterday that a bailout program for troubled homeowners is needed to prevent the foreclosure crisis from spinning out of control. However, he also emphasized that not all borrowers should be rescued.
"Diminishing foreclosures is an important part of getting out of this [crisis]," Rep. Frank said in an opening statement at a Congressional hearing focused on what banks were doing to modify loans and further assist borrowers facing foreclosure, while adding that taxpayer money should not provide a "free ride" to people facing foreclosure, and warned that aid should not go to homeowners who should have never been in a mortgage to begin with.
"There is, in my judgment, zero likelihood that taxpayer dollars will go to those who should have never have had loans in the first place," Rep. Frank said.
Banks, like Bank of America, Citigroup and JP Morgan Chase, have started programs to modify loans for borrowers that are in danger of being foreclosed on. However, all of the programs have certain criteria that need to be met in order for a borrower to qualify (i.e. being in default; which is problematic because it could encourage frustrated borrowers who are in underwater mortgages, and who are not behind on their payments, to default in order to receive a loan modification) and the loan modification programs also appear to be overly streamlined, so it remains to be seen if the loan modification programs being offered by the banks will provide desirable results.
And even with the banks tackling the foreclosure crisis with their own loan modification programs, Mark Zandi, chief economist for Moody's Economy.com, estimates that 1.6 million Americans will lose their homes this year through foreclosure or distressed sale. Zandi, who was not at Rep. Frank's hearing, has also stressed for the past year (at least since December 2007) that another 1.9 million families will their homes in 2009, regardless of wide-scale loan modification programs.