Foreclosure Bailouts
Filed under: Foreclosure, Mortgage Industry Trends — admin @ 8:56 pm
Frankly while not the most conservative amongst my friends in the mortgage world, I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. This legislation would essentially make FHA the largest scratch and dent lender in the market.
Articles I have been reading note that lenders would have to mark down the principal balance to a 90% CLTV under this program. Writing down this loss is actually considerably better than most can get in scratch and dent market at 40-60 cents on the dollar. What a deal!
Additionally, many homes are obviously in a declining markets and lenders subject to FNMA guidelines are already refusing to purchase loans tied to these properties. Will FHA blatantly ignore this… or will they just dramatically cut value like every other lender out there? What happens when those loans that were underwritten poorly and given to distressed borrowers default? Are we going to allow legislation to stick it to the taxpayer? What happens when we run out of investors willing to lend money to the US, either Treasury or mortgage? What happens when we continue to operate under exhaustive deficits?
What happens when we advance policies that tell borrowers/consumers they are not responsible at all for their participation in this fiasco? In fact let’s go a step further, the money that they borrowed to buy all of those goodies is “free”…well not “free” exactly…the burden to repay the shortfall will fall upon the taxpayer and those that are not financially irresponsible.
I appreciate that we are in a debacle. I understand that we are searching for answers. I just don’t believe that we can spend our way out of this with an average $1200 tax refund we had to borrower from China. I don’t believe that we should ask the American taxpayer to eat the cost, not without huge ramifications across the financial markets that will exacerbate the issue. The issue here is: deficit and risk. Investors do know how to add. A dollar worth 85 cents just isn’t as attractive and we’ve effectively shown that the value of the dollar can be slashed to all time lows. Enter stage right - the Euro?!
It’s interesting that record profits spanning the last 7 to 10 years seem to have been forgotten in the last 8 months of disaster. It’s hard to cry tears of pity for many of these big guys…they and their investors were on hand to cash the checks when it was boom time… don’t they plan for rainy days or the winter season? Is this just a really big case of the grasshopper and the ants? The many ants doing the right thing having to feed a few fat grasshoppers that enjoyed the summer season only thinking of themselves and their wallets.
I am willing to pay to be an American. I am willing to pay to help out disaster victims, kids and old people. As for Sally Smith and others who just couldn’t be bothered to save a deposit or begin with a starter house and the lending institutions that helped them into homes they could not afford, this should be a lesson well learned. I’m not saying that there are not victims in the awful state of affairs, but providing bailouts across the board would be like giving a teenager a brand new car after wrecking the first one you gave them the week before. There is no lesson learned if there are not real repercussions like having to ride the bus instead, and the likelyihood of a repeat performance is high.
Stumble it!