Pete the Banker: The Mortgage Deal "From Hell"

February 23, 2012

We thought Groundhog Day was over, but when it comes to setting up another mortgage debacle: here we go again. The Presidents State of the Union address produced this promise,

“… I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.”

But apparently that promise was written in invisible ink because now what do you think he and his economic geniuses have done? If you guessed creating another set of homeowners who are given sweetheart deals that they can’t afford you get the gold star.

And it sounds like another case of ‘we want another one, just like the other one!’

You will recall the recent blog article citing the President’s hypocritical statement in light of his Administration’s encouragement of low down payment home loans through the FHA.

President Obama in his Administration’s latest $26 B Mortgage bailout proposal, intends to help borrowers who have stopped making payments on their mortgages and are in foreclosure by proposing to require the largest private banks to modify their mortgage loans by paying down existing loan balances on delinquent loans. This simply reestablishes the pre-crisis policy of creating a class of home loans which are characterized by the borrowers displaying little or no equity in their home. Some one million borrowers most whom have questionable credit will “benefit”, although based on previous historical experience under the Administration’s Home Affordable Modification Program most have an extremely high risk of re-default within the 12 – 18 month period following their loan modification. A second smaller set of those qualifying include borrowers whose homes are already worth less than they owe on the mortgage. This settlement includes only loans held by the larger private banks and not those packaged for sale, held by or insured by Fannie Mae, Freddie Mac or the FHA.

Dick Bove CNBC commentator and bank analyst proclaimed this the “Mortgage Deal From Hell”,

“The government has selected a small minority of homeowners to get this benefit (1 million of 75 million or 1.3 percent of the total),” he wrote in an analysis. “Homeowners who made large down payments on their homes or made the terrible mistake to pay down the principal on their mortgages do not qualify. Homeowners who made minimal or no down payments will get the windfall benefit of a lower principal repayment or a cash payment.”

Home prices have fallen between 4 – 5% over past 12 months. Housing prices are projected to erode further in 2012 creating a situation in which those borrowers benefiting form this bailout will watch their home values fall further relative to their loan balances, simply delaying their inevitable default and foreclosure.

Bove strongly suggests this program will hurt responsible borrowers, while of little benefit to those who will receive assistance. In other words, those who have responsibly paid down their mortgage and continue to make timely payments are being told by this Administration to “Go To Hell”.

In a column in the NY Post, Journalist and CNBC Commentator Charles Gasparino elaborates,

“But the worse part of the deal is that it will prevent the housing market from recovering anytime soon while sowing the seeds for another bubble. ” and, “All of which sounds harmless — until you realize that foreclosures are a necessary ingredient to the housing market’s recovery, because they allow prices to hit bottom and entice people who can afford homes to buy them and bid up prices again. So, the bailout does little more than delay the pain because housing prices at some point must reflect the market, with its glut of inventory in many areas.”

So Mr. President, isn’t it time to change those failed government policies of the past and let the market work? You’ve promised change only to reanimate rate the very same policies that existed prior to the financial crisis.

Tell ’em where you saw it. Http://www.victoriataft.com

Pete the Banker: The Mortgage Deal "From Hell"

February 23, 2012

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