Last week I published a post that predicted that the Federal Reserve will start bailouts by performing principal reductions for underwater homeowners. I wanted to detail exactly how did we reach that stage. So, I wanted to briefly detail the last five years of housing bailouts. It was just an impossible task to sum up in a few paragraphs due the sheer number of programs.
If fact I should have have created this list first, would have made writing easy. I will attempt to name the program, the beneficiary of the program, and a brief description of the program. California local programs are not listed here, because I’m sure that there are dozens if not hundreds of local and state bailout programs.
|Market-to-Market accounting change||Banks||It allowed to banks not document losses based on market value, until they foreclosed or sell the loan. Not a bailout per se, it was changed help out banks during this bubble.|
|$25 Billion Bank Settlement||Banks||It was meant to punish banks by ordering them to do $25 Billion of loan modifications. However, short sales are were consider modifications|
|Mortgage Forgiveness Debt Act||Loan Owners||Allows homeowners that have their debt discharged not taxed as regular income. Normally this discharged is taxed.|
|TARP||Banks||This was “loan” to banks to help return them to financial stability.|
|ZIRP (Zero Interest Rate Policy)||Banks & Loan Owners||The Federal Reserve set interest rates at 0% to help stimulate economy. However banks benefit by not paying real interest on CD’s. Loan Owners can also get a lower mortgage rate|
|Freddie Mac & Fannie Mae Takeover||Freddie Mac & Fannie Mae||This kept Fannie and Freddie out of bankruptcy. In the long term it allow the Federal Government directly control the Secondary Market|
|HAMP||Loan Owners||Underwater loan owners to get a loan modification for a lower rate. It was deemed too strict.|
|HARP||Loan Owners||Underwater loan owners would be able to get principal reductions under strict conditions.|
|FHA (subprime)||Banks||FHA was used to replace the private subprime lenders. It was used in conjunction with ZIRP to try and increase home values. The conforming loan limits were increased to help out the most bubble areas.|
|Tax Credit||Buyers||The federal government wanted to stimulate home purchase by offering a tax credit. After the tax credit end home sales dropped.|
|QE 1 and QE 3||Banks||This is a policy of the Federal Reserve to create money and then use it mortgage banked securities with the intent of pushing down mortgage rates to reduce borrowing costs.|
|HAMP 2.0||Loan Owners||A more liberal form of the HAMP program to increase the number of loan modifications|
|HARP 2.0||Loan Owners||A more liberal form of the HAMP program to increase the number of loan principal reductions|
|Fed loans to banks||Banks||Overnight .25% annual over night loans to banks to used for lending|
|FHA Streamline||Loan Owners||It allows existing FHA borrowers to refinance to lower mortgage rate by lowering reducing required insurance premium|
|Hard Hit program||Banks, Loan Owners||It is a tax supported principal write down if the lender agreed to for 50% of the write down|
The sheer number of large programs is just too much to absorb in one afternoon. It does look like I should have created this list in a few minutes, but it actually took some time to create this table. Additionally, some these programs have multiple beneficiaries, or just directed at the banking industry in general. What would the be current state of the housing market if none of these programs existed. I’m confident that academics for generations will be studying this time in history…probably what we were thinking at the time.
Some of these programs just didn’t have one bailout component. For example, FHA 1) lower the qualifying credit scores 2) increased the conforming loan limits and 3) second purchase of another home after 5 years of residence. Even now FHA was trying to expand into mix use properties. Fannie Mae and Freddie Mac had similar expansion of their programs as FHA.
It would have taken too much time, but adding a cost to each program would be very educational. Some would be hard to measure, because how would measure the cost of QE, Larry did a post on that very subject yesterday.
Now, if you can think of additional national policy change, bank bailout, or tax payer bailout programs please list them in the comments. I really want to document all the programs.