Friday, August 31, 2007

FHA Plan:Bring a water gun to fight a fire.

The markets waited with baited breath for the announcement of the Bush adminstration's plan to rescue subprime home owners from foreclosure:

"Traders seem to have packed away concerns regarding a speech by Federal Reserve Chairman Ben Bernanke, focusing instead on aid for subprime lenders being hinted at by the Bush administration. According to The Wall Street Journal, about an hour after Bernanke's speech, Bush is expected to announce plans for a change in the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. The change would allow 80,000 more homeowners in 2008 to receive federally insured mortgages on top of the 160,000 projected to use the insurance, the Journal reported."

This helps very few people in California, Nevada, Florida, etc. The states most affected by the resetting of subprime loans and the rising wave of foreclosure filings. As an example visit the Countrywide Foreclosed Home Blog. Notice how many foreclosed homes are above the FHA limit of 417k? Another point is that these folks could have received a number of different mortgage loans from Fannie Mae and FHA over the last few years but they wouldn't have qualified because their debt to income numbers are too high. The mortgage payment with taxes, insurance and all their debt(cars, credit cards,etc.) can't be over 50% of their gross income. They couldn't make the payments on time with a 5-6% 2Y or 3Y adjustable rate mortgage with interest only in the majority of cases. What makes people believe these folks can be helped? This is political grand standing at it's finest. This isn't a rescue plan nor should we allow one to happen. Unless fraud was involved on the part of the mortgage bank or lender these folks signed loan documents and commited to house payments that were beyond their means. They had ample opportunity to refinance throughout the last two years when subprime and ALT-A was available. They received an unbelievable amount of calls and junk mail to refinance.

More often than not they were hoping against hope that they could refinance into even lower rates. The back up plan was to sell the house and pocket 100-200k of their "equity" that they had earned for being a home owner in the great housing boom. Believe me, you couldn't get these folks to get a fixed rate mortgage during the boom years of 03-06. Because the rate was .25-.50% higher. All the subprime shops offered a 30Y fixed, and even had an interest only option available. They all qualified for it. They always opted for the cheapest payment. People need to downsize their home and/or lifestyle, work more or relocate to a city or state with more affordable housing. Taxpayers shouldn't bailout the home owners and the lenders who made foolish decisions.

Don't believe for a minute that all subprime borrowers were screwed over. Sure just like anything their was fraud and ignorance. But, in California, I witnessed a lot of people driving Hummer's and buying plasmas at Best Buy with the cashout from their Ameriquest ineterest only 2Y fixed adjustable rate mortgage. I work in the industry and have a million stories. What's your take, it might be your money on your 2008 or 2009 taxes?


Anonymous said...

You just don't get it because you guys don't give the president a whole lot of credit. He's trying to have his cake and eat it too. He is trying to be seen as doing something about the mortgage crisis without actually doing anyting substantial. He's on YOUR side. He's bringing a water gun to a fire fight because he actually wants this rat-infested flop-house of a real estate market to burn to the ground. And, at the end of the day, he can say he did his best to save families from facing foreclosures.

Got it?

Westside Bubble said...

The LA Times' "Q & A
For some, a chance to refinance despite default
" today gives useful detail, and supports the idea that this won't have much of an effect.

Jay said...

The housing problem is not easy to solve. It will involve the efforts of the president, the congress, the banking industry and the homeowners. Lets all work together to get this market back to normal.