Government Takes Another Crack at Mortgage Woes

The Federal Housing Administration has unveiled another government effort aimed at dealing with the aftereffects of the housing bubble.

September 7, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user chrisdlugosz

The Federal Housing Administration has unveiled another government effort aimed at dealing with the aftereffects of the housing bubble. The program, to be known as the FHA Short Refinance option, the predicament of underwater mortgage holders, those who owe more than their properties are worth in a post-bubble environment and who are current on their payments–and who haven’t walked away from the financial albatross, as tempting as that might be.

Under the program, lenders can write down mortgages to less than the value of the home as a part of refinancing them into Federal Housing Administration-backed loans with loan-to-values of no more than 97.75 percent. In theory, the lender is getting payment immediately–a short payment to extinguish the debt–in exchange for getting rid of a mortgage that is at some risk of failure. By converting it loan into an FHA-backed one, the government thus assumes the risk.

The program is different from other government stabs at ameliorating the mortgage mess in that mortgage holders who aren’t delinquent can apply for the FHA Short Refinance. But the program might well be similar to other such efforts in that the private sector might not want to go along with it. The program is voluntary on the part of everyone concerned, especially the lenders, who have so far proven less than enthusiastic about writing mortgages down by so much as a penny.

ISM Reports Non-Manufacturing Still Growing, But Slower

The Institute for Supply Management’s latest survey on the U.S. non-manufacturing sector bolstered the case the double dip isn’t in the cards, though growth is fairly anemic. The organization’s Non-Manufacturing Index registered 51.5 percent in August, 2.8 percentage points lower than the 54.3 percent in July, which indicates continued growth in the non-manufacturing sector but at a slower rate, according to the ISM Report on Business.

Among other parts of the main index, New Orders Index decreased 4.3 percentage points to 52.4 percent in August, and the Employment Index decreased 2.7 percentage points to 48.2 percent during the month, reflecting contraction after one month of growth. The Prices Index, on the other hand, increased 7.6 percentage points to 60.3 percent in August, indicating that prices increased significantly in July. According to the NMI, nine non-manufacturing industries reported growth in August, including–remarkably–real estate and construction.

Other industries that did relatively well in August included arts and entertainment; education; transportation; and accommodation and food services. By contrast, agriculture, fishing, mining, scientific and technical services, utilities, the public sector, and retail reported contraction in August.

Private Sector Creating Some Jobs

More evidence that the economy is treading water, not sinking into the much-blabbed about double dip: some 67,000 jobs were created in August by the private sector, according to the U.S. Department of Labor late last week, and July and June’s private employment numbers were revised up as well.

That didn’t lower the official U.S. unemployment rate, however, which nudged up from 9.5 percent to 9.6 percent because the loss of jobs continued in the public sector, and the fact that number of jobs added isn’t enough to keep up with the number of people entering the job market–including some that have been out for a while but who are now looking again.

Wall Street had the day off on Monday, but last Friday it seemed to rejoice at such good news as there was about employment and other aspects of the non-double-dip. The Dow Jones Industrial Average gained 127.83 points, or 1.24 percent, and the S&P 500 was up 1.32 percent. The Nasdaq advanced 1.53 percent.