The U.S. government and its newly linked mortgage lenders Fannie Mae and Freddie Mac have rolled out a plan to help homeowners with delinquent loans to pay them back more gradually. Of the delinquent loans weighing on the economy, the two companies own less than 20%. Of course, the plan has its detractors. James Lockhart, who manages the two agencies, has taken criticism for not making steps to address the problem of privately held mortgage securities.
Under the new program, homeowners with mortgages held by Fannie and Freddie who are at least 90 days delinquent will be eligible to have their monthly payment reduced to 38% of gross income, as long as they’re not in bankruptcy and can illustrate a hardship or change in financial circumstances. This model, based heavily on a streamlined loan modification program the FDIC is implementing at the failed lender IndyMac, is a strong endorsement of the idea that doing a lengthy analysis of homeowners’ finances is taking too long to make a dent in the nation’s housing woes.
The plan, like most since the bailout fiasco began, is meant to provide short-term help and some interest rate cuts to struggling borrowers. Unfortunately, the larger problem lies with the securities industry itself, long lacking the thorough review required to maintain the integrity of the housing and credit markets.
Simultaneously, the House Democrats Nancy Pelosi and Harry Reid are pushing for the part of the apportioned $700B bailout deal to go directly to Detroit automakers. General Motors is in rapid decline, having lost considerable value in the last two months alone. As President Bush inks a deal to provide immediate relief to banks, the automaker has chimed in with a loud plea for its own help, citing its entrenchment in American job production. Both President-elect Obama and current President George W. Bush understand the importance of the auto industry, but conventional wisdom shows that General Motors has not made the innovations to stay on pace with foreign manufacturers.
However, the Democrats who want to set aside more money for automakers believe that it’s a way to prop up an industry that has long supported U.S. production. In the worst case, G.M.’s job losses and lost revenue could several hurt yet another sector of the American markets.
Its cash cushion has been shrinking by more than $2 billion a month this fall. If that continues, G.M.’s reserves will fall below the minimum of $10 billion in cash it needs to run its global operations by January, the company said in its third-quarter S.E.C. filing.
With Detroit already in decay, and Bush reluctant to give more money to a dying industry, it appears the economy will reel even after the bailout deal is final.