Ease tight credit standards to calm mortgage woes: Summers

Washington: Rather than finger-pointing to figure out who’s to blame for the US mortgage mess, the government should push to ease tight credit standards and allow people who are current on their mortgages to refinance without paying high fees, former US Treasury secretary Lawrence Summers wrote on Sunday.

While many banks and financial institutions had lent aggressively in the past, Summers argued in a Reuters column that the pendulum had now swung too far the other way.

“Credit standards for those seeking to buy homes are too high and too rigorous in America today,” he wrote.

He urged Fannie Mae and Freddie Mac to take steps to encourage homeowners to take advantage of extremely low interest rates, scrapping high fees and other disincentives for refinancing.

The former treasury secretary further urged that the two mortgage finance agencies act aggressively to encourage mass sales of foreclosed properties so they could be rented out.

Summers also noted that many people who had the terms of their mortgages reworked under a government program intended to prevent foreclosures were still unable to keep up with their payments. “Surely there is a strong case for experimentation with principal reduction strategies at the local level,” he wrote.

Last, Summers urged probes into past mortgage-related abuses be wrapped up quickly. “It is equally in the interests of bank shareholders and the housing market that a rapid resolution of disputes be achieved,” he wrote.

The Obama administration appears to be moving toward taking some of the steps suggested by Summers including working with the Federal Housing Financing Agency to find ways to make it easier for borrowers to switch to cheaper loans even if they have little to no equity in their homes.

The plan could be unveiled as early as Monday, sources have told Reuters.

FHFA intends to loosen the terms of the two-year-old Home Affordable Refinance Program, or HARP, which helps borrowers who have been making mortgage payments on time but who have not been able to refinance as their home values have dropped.

When the refinancing program was introduced in March 2009, the Obama administration predicted it would help as many as 5 million homeowners. So far, however, only 893,800 borrowers have refinanced their loans through HARP. An estimated 11 million homeowners owe more than their homes are worth.

Officials have been frustrated that attempts to bolster housing, the epicenter of the worst US recession since the Great Depression have borne little fruit.

Fannie and Freddie, combined with the Federal Housing Administration, support about 90 percent of the mortgage market.

Reuters