If it emerges from the House, the government's proposed $700 billion bailout for the nation's financial industry should keep consumer lending flowing and ease somewhat the nation's mortgage foreclosure crisis, some local experts believe.
But some say the huge package -- which failed Monday to gain approval -- falls far short of what's needed to stem rising mortgage foreclosures and declining home sales.
"We need to get this done, but it doesn't mean we are through the storm yet," said senior economist Robert Dye of PNC Financial Services Group yesterday.
"It was obvious that the intent of the lawmakers was to create conditions that would help distressed homeowners get some relief," Dye said. "The problem has been the tremendous uncertainty to all aspects of the mortgage market."
Maryellen Hayden, head organizer for activist Association of Community Organizations for Reform Now (ACORN) in Western Pennsylvania, said the plan wouldn't do enough to help local homeowners.
Hayden, whose organization works with residents dealing with foreclosure issues, lamented the legislation didn't include a Democratic-backed proposal to give federal bankruptcy judges the authority to alter mortgage terms -- such as interest rates -- for primary residences.
"If we had the bankruptcy provision in there, a bankruptcy judge could allow a loan to be fixed and affordable, and that would be the best thing we could do for homeowners," said Hayden.
Home foreclosures are on a record-setting pace in the Pittsburgh region, which consists of Allegheny, Beaver, Butler, Washington and Westmoreland counties, according to RealStats, a South Side-based real estate information company.
From January through July, there were 2,491 home foreclosures. That's the highest number for the first seven months of the year since 1987, the company said. The previous record was 2,452 foreclosures in the first seven months of 2006.
Irresponsible home buyers as well as slipshod lending practices have been blamed for driving up foreclosure rates this year, so some experts say a revision of loan terms isn't necessarily the cure for the housing market.
Even when lenders may be willing to revise loan terms, it may not be that easy. The nation's complicated mortgage lending system had lenders selling loans to organizations like Fannie Mae and Freddie Mac, which packaged the loans and sold them to investors, said Mark Steele, president of Howard Hanna Financial Services.
"I disagree that lenders aren't willing to work with homeowners," said Steele. "But whether they can do that (alter the mortgage) I don't know the answer if those mortgages have been sold as securities. Those who bought the securities may have to determine that."
Some help for homeowners is expected from a separate bailout for troubled homeowners that is scheduled to take effect Wednesday.
The new "Hope for Homeowners" program would open refinancing opportunities to people whose home value is now too low to pay off the old loan.
It would permit borrowers to qualify for a 30-year, fixed-rate mortgage insured by the Federal Home Administration, but only after their current lender agrees to forgive enough debt so that the homeowner would have at least 10 percent equity in the property.
Lender participation is voluntary. Some lenders have said they said would be reluctant to write off the principal of their loans because of opposition from investors who bought mortgage-backed bonds.
"Some people are nervous about seeing the government jump into the mortgage market," said Tom Hosack, president of Northwood Realty Services, one of the region's large residential real estate companies.
"The real issue is when the plan develops a working model, how will the money be given," he said.
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