Friday, September 26, 2008
Democrats want to include a provision in the federal bailout that would allow bankruptcy judges to change the mortgage loan terms of homeowners facing bankruptcy. Currently, bankruptcy judges can modify terms of all other types of loans but not mortgages. Bankers say the change would raise rates for everyone.
Rates on 30-year mortgages, which had been falling for five weeks, jumped sharply this week to 6.09 percent, reflecting the turbulence in global credit markets.
The federal bailout of Fannie Mae and Freddie Mac should help homebuyers, but nothing has improved on the street level yet. The new chief executives say they want to stabilize the housing market first and, after that, make it easier for homebuyers to secure a mortgage.
The Federal Deposit Insurance Corp. seized Washington Mutual (WaMu) on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion. The Seattle-based bank collapsed under the weight of its enormous bad bets on the mortgage market.
FHA: NO MORE 'BUY AND BAIL'
The FHA will no longer allow homebuyers to rent out their current home and use the expected rental income as part of the basis for obtaining a new mortgage to buy another home. Most buyers must now show that they can cover both mortgages unless they have 25-percent equity or provide proof of a job relocation and arrange a one-year lease on their current home. The FHA hopes the new rule - implemented as a temporary measure on Sept. 19 - will prevent buyers from purchasing a less expensive home and abandoning their current mortgage.
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