Another Barney made headlines over the weekend. The US’s House Financial Services Committee chairman and Massachusetts congressman Barney Frank has submitted a proposal to overhaul the Tarp.
The document, at 74 very dry pages, is somewhat hard-going. For those wishing to retain their sanity early Monday morning, Bank of America has provided a convenient summary (Click to enlarge).
The main thrust of the proposal centres on preventing further foreclosures for US homeowners. Specifically, Frank wants at least $50bn of the Tarp funds to be used to help homeowners — via loan guarantees or incentives to encourage loan modifications.
That’s important, because, as Bank of America’s Jeffrey Rosenberg notes:
Progress towards that resolution represents the crucial element for the financial market outlook, as its form and speed will determine the duration of credit constriction and hence of economic recession. Ultimately, the government response must balance the desire to speed financial repair and aid struggling homeowners with the need to protect taxpayers.
A noble cause then. We’d note also, that the issue of the Hope for Homeowners programme was something Michael Lewis and David Einhorn picked up in their New York Times op-ed last week. The programme, meant to aid some 400,000 homeowners in the States in danger of foreclosure, had seen only 312 applications as of December.
Clearly revisions are needed. But, we found this bit of Barney Frank’s proposal rather intriguing:
Eliminates government profit sharing of appreciation over market value of home at time of refinancing.
Under the profit-sharing part of the Housing and Economic Recovery Act of 2008, homeowners at risk of foreclosure could refinance their mortgages via the Federal Housing Administration “at a signficant discount.” In exchange they had to share future appreciation in the value of their homes with the FHA.
This, perhaps unsurprisingly, was a stumbling block for applicants, who weren’t happy at the prospect of ’sharing’ profit (sharing losses with the taxpayer was, presumably, fine). Eliminating the profit-sharing scheme altogether consequently results in, as BoA’s Rosenberg, describes it:
…a major shift towards making the program more attractive from the borrower’s perspective at the taxpayer’s expense.
Bail-out indeed. Pity the non-mortgage owning Americans. Even Felix Salmon at Portfolio is on the case of renters this morning.
Related link:
Frank moves to tighten Tarp aid - FT
