A lot of the loans to homeowners that are underwater are owned outright or, at a minimum, insured (more often both) by Fannie Mae and Freddie Mac, the government-sponsored (which means taxpayer saddled) enterprises that the government had to take over when in 2008 they lost on their trillion-dollar bets that home prices would go up forever. Geniuses!
In fact, these geniuses own or insure close to half of all home loans in the United States. Obviously, they like to bet big. But they didn't bet alone. They had betting partners.
The casino was the whole country and the whole system.
The mortgage originators, prime and subprime lenders, banks - everyone was handing out loans because, get this, they wouldn't be responsible for the loans they were making. Fannie and Freddie were buying them all up while the guilty parties would make money as Fannie and Freddie pipelined more products to - guess what - make more loans!
In case you forgot, that's where all the money came from in the whirling dervish derby that fed the mortgage bubble and aided and abetted Alan Greenspan's how-low-can-you-go interest rate policies. I guess we can call him the Big Pit Boss. But I digress...
So, if Fannie and Freddie own your loan and you're underwater, they have been cattle-prodded by the geniuses above them (yep, government geniuses) to let you refinance at a lower rate (lower than the crushing, sucker's rate that ballooned on you).
Because, as an investor (that's what home buying really is - an investment, not a right) you made a go-for-broke bet at the table and forgot your basic math. Math that says, "One, plus the none that I have, equals three, so this is a good bet I can double down on and retire."
What will these geniuses think of next?
Banks won't let you borrow more from them - you'd end up actually paying them less on your underwater house. That would be stupid of them, and we all know banks aren't stupid.
But, apparently, that's OK for Fannie and Freddie to do. Why?
You're just going to love this logic...
Because they aren't taking the additional risk. They're already insolvent government wards. See, it's the taxpayers who are taking on the additional risk, helping underwater borrowers reduce their payments by letting them refinance.
Why is that good government policy? Because if they have more shekels in their pockets, these underwater folks are going to spend it and send that money back into the economy. That's the theory. You see, that's how they got into this mess in the first place. Genius.
But I digress, again.
Obama and company now want to help the underwater borrowers whose loans aren't owned or insured by Fannie and Freddie.
According to their genius plan, they want F&F to buy and insure refinanced loans from the folks whose mortgages they don't already own. Why? Because when the government geniuses asked banks to do this on their own, they heard the reply loud and clear: "Go F&F yourselves."
Obama and company tried this back in February, when they suggested that the Federal Housing Administration take on more underwater loans so refinanced folks could have more spending money. But that didn't happen. Someone pointed out that there was a newspaper article that the government must have missed that hinted that the FHA was about to need its own bailout. And wouldn't you know it, they just about do.
Maybe it's me, but if the geniuses at F&F have been saddled with so much junk that they're wheezing along on life support, and if there's talk - although nothing ever happens - that they should be unwound and buried, why would anyone suggest that they take on even more underwater loans and receive even less interest for the additional risk? Geniuses, right?
Look, it's not that I have a problem helping people. I'm all for it. But I'm not for helping investors who take risks and then can't handle the heat in the kitchen when the oven door flies open. I'm not for saddling taxpayers with higher risk loans so the folks who are underwater can get more spending money to help the economy - as if that's a good plan in the first place.
If we want to help underwater homeowners, or folks saddled with high-interest mortgages, there's a smarter, more humane way to do it.
We bailed out the banks that got us all into this mess. So why not make all of them offer refinancing to any homeowners who've been regularly paying their mortgage? These homeowners deserve some credit for doing the right thing, for dealing with a bad investment like good investors do.
And make the banks offer super low interest loans and keep the loans on their own books.
Yes, I said MAKE them. And that's exactly what I mean.
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Tags: Bank of America, BOA, Housing Crisis, housing crisis 2008, Housing Market, mortgage, mortgage crisis, mortgage crisis 2008