Return of liar loans?

  • Posted by a hidden member.
    Log in to view his profile

    Oct 25, 2011 1:02 PM GMT
    http://finance.fortune.cnn.com/2011/10/25/harp-mortgage-refinancing/ - The Obama administration proposes to bypass congress and provide mortgage relief targeted at the least responsible borrowers who were responsible for the crisis.

    Under the new mortgage refinancing plan announced by the White House, you don't need to prove any income to qualify. Sound familiar?

    FORTUNE -- The much-written about federally sponsored mortgage refinancing program that started in 2009 fell far short of its aim to help 3 to 4 million homeowners refinance into a better mortgage. It hasn't worked out nearly as well as hoped, with 894,000 mortgages refinanced so far under the Home Affordable Mortgage Program (HAMP).

    The new plan from the administration should get a lot more homeowners into cheaper mortgages, but in doing so rewards the so-called liar loans that helped spawn this mess to begin with.

    Part of the reason HAMP flopped was because homeowners had to provide income tax statements, pay stubs and bank records to prove they had the finances to afford a mortgage. That was a problem since a vast swath of homebuyers (including me) got mortgages without ever having to do much more than write down annual income on a form.

    Under the new plan, renamed to give it the more appealing acronym HARP (for Home Affordable Refinancing Program), you can get a loan for up to twice the current value of your house at current interest rates, currently a near-historic low of 3.94% for a 30-year fixed mortgage. Like one of those late night commercials on TV, Uncle Sam doesn't care if you have good credit, bad credit, no credit or if you own your own car: if you have a mortgage you can get it refinanced, provided you weren't late more than once in the past 12 months on your existing loan. In short, the government has gone from wanting you to prove you deserve a mortgage -- like what it should have demanded from the mortgage industry in the boom times -- to a financial version of don't ask, don't tell.

    It's not quite as bad as I make it out to seem. For one, the program only allows refinancing of mortgages already guaranteed by the government through Freddie Mac and Fannie Mae and you can't get a loan for more than your existing mortgage. By lowering mortgage payments, it presumably lowers the risk on the government's balance sheet. Of course, new 30-year loans replacing loans with fewer years left pushes up risk. The plan's incentive to get people to take a shorter loan term by eliminating some fees is a smart way to counteract that.

    But consider this: if you have more than 20% equity in your home, you can't participate. If you bought smart, paid 20% or more down and didn't pull out equity to fuel a buying binge back in 2006, there is no help here.
    Like with the bailout of Wall Street firms before it, it turns out this bailout ultimately benefits those who stretched the truth and acted irresponsibly.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 25, 2011 1:07 PM GMT
    Like giving a heroin addict more heroin to prevent withdrawal.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 25, 2011 1:20 PM GMT
    socalfitness saidLike giving a heroin addict more heroin to prevent withdrawal.


    It's a bizarre inability to learn. It won't even help in any way to stimulate the economy - just bail out those who weren't responsible with their own money.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 25, 2011 1:32 PM GMT
    riddler78 said
    socalfitness saidLike giving a heroin addict more heroin to prevent withdrawal.


    It's a bizarre inability to learn. It won't even help in any way to stimulate the economy - just bail out those who weren't responsible with their own money.

    More thrashing about in what shapes up as the beginning of a series of desperate attempts to cover up a failed policy and incompetence.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 25, 2011 3:02 PM GMT
    http://www.cnbc.com/id/45021347

    "Obama Refi Plan is Not Housing Stimulus"

    "President Obama is taking action."

    At least that's what the blog on the WhiteHouse.gov says today in describing the president's trip to Las Vegas.

    "We can't wait to help homeowners," it goes.

    That action consists of revamping an existing government refinance program through Fannie Mae and Freddie Mac for borrowers who owe more on their mortgages than their homes are worth, so-called "underwater" borrowers. There are an estimated 11 million of those nationwide according to CoreLogic.

    The original program, which started in 2009 and has helped about 900,000 borrowers get lower interest rates, was capped. You couldn't owe more than 25 percent more than your home was worth.

    That cap is now gone, so you can be eligible no matter how underwater you are. Fees have been waived or lowered, banks have been largely let off the hook for reps and warrants on the loans (when they are forced to buy back bad loans), second liens can be transferred and mortgage insurers will move their coverage to the new loan.


    While federal regulators and administration officials were releasing, explaining and selling the plan in Washington this morning, President Obama is making his pitch in a state where 60 percent of homeowners with a mortgage are underwater on those mortgages.

    But Las Vegas is also the foreclosure capital of America. 70 percent of home sales in August were of "distressed" properties, that is foreclosures and short sales. The number of new notices of default also surged in that month, up nearly 58 percent from July, as lenders ramp up the foreclosure machine again.

    The Obama refi program enhancements do nothing about those numbers. This plan is for current borrowers who want to get a lower monthly payment through a lower mortgage rate. Yes, it's the first plan that "rewards positive behavior," says Florida attorney and mortgage expert Shari Olefson, but it doesn't do anything for the now 6 million plus borrowers who are either behind on their mortgage payments or already in the foreclosure process. It also does nothing about all those foreclosed properties sitting on the books of Fannie, Freddie, the FHA and the big banks that still need to be sold and right now can only be sold at below-market prices. This plan does nothing to stop the bleeding in home prices.