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The program “helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.
The government remains on its track to save the housing market by keeping people who cannot afford in their homes. That presents several risks. The first is that many homeowners who have gotten new financing end up defaulting anyway. This behavior is probably driven by both unemployment and the realization that homeowners have that their houses will never be worth more than the mortgages on them. The homeowner is already essentially a “renter” when his home is underwater. He is simply paying his rent to his bank.
One of the effect of putting artificial support under the housing market either through refinancing or a rent to own program is that the price of homes will take longer to bottom than it would if the free market was able to operate. Housing prices would probably drop violently without government support, but that would bring them to a level that would almost certainly stimulate renewed buying activity.
The alternative to not allowing housing prices to find their own level is to create a nation of renters in which banks and the government own many of the homes.
Douglas A. McIntyre
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