Mortgage Relief for Mortgage Companies, Here we go again
Let me get this right. We are going to give money to the institutions that are responsible for mismanaging their loans, so that they can give money to the people who mismanaged their mortgages, and administer these funds through Fannie Mae and Freddie Mac who guaranteed the bad loans in the first place. Stop for one second and say that out loud.
In a nutshell, the government is going to sanction mortgage companies, via guaranteed funds, to reduce the interest rates and loan amounts on mortgages until the borrower’s debt to income ratio reaches 31% of their gross pay.
This is huge; this will erase the bad loans that mortgage companies have on their books while helping the people who own homes that aren’t worth what they owe on them. Not to mention, it will solidify Fannie and Freddie by lowering the risk factor of insuring the loans. All and all, this is a noble plan. The problem is in the execution, this is typical bureaucratic idiocy that landed us in this mess in the first place.
In the 90’s Freddie and Fannie began making risky loans to low income families in an attempt to spur home ownership. These programs were initiated at the insistence of liberal minded legislators acting on behalf of special interest groups.
In turn, Freddie and Fannie corporate officers raised their salaries by millions of dollars as a result of the increased volume of loans the companies now facilitated. Ironically, Fannie and Freddie became two of the largest contributors to Democratic and Republican campaign funds.
The more homes they financed, the more Fannie and Freddie CEO’s made which resulted in higher campaign contributions. In an effort to continue their “low housing incentives” they relaxed their underwriting guidelines on new home purchases from 10% down to $0 down while allowing higher debt to income ratios; essentially keeping America under the ether.
Now our plan is to pump our tax payer dollars back through Fannie and Freddie, which is ran by the same CEO’s, for them to give it back to the same irresponsible lenders. These lenders, in turn, will loan back the money to the same borrowers who made the bad home buying decisions in the first place. The first thing that comes to my mind is Lucy holding the football for Charlie Brown to kick and promising not to move it again.
As if that doesn’t sound silly enough, we plan to appoint politicians, all cut from the same cloth, to run oversight over the entire mess. How long must we bang our head against the proverbial wall of corruption and bureaucracy before we see the light?
As I said earlier, the notion for the government to jump in is noble, and necessary. However, there is a better way. We the American tax payers deserve a better guarantee that our money is being well spent and effectively administered. The first step is securing the money that we are going to loan with some collateral, like all other loans do. Call me skeptical, but I’m hesitant to take CEO’s and politician’s promise to repay us.
Instead of forking over our money for these companies to adjust the loans to keep on their books, why don’t we just buy the homes in question? Believe me; we have the money in the stimulus package to do this. This alleviates the bad paper from the lenders, lowers the risk of Freddie and Fannie who insure the loans, and guarantees the American taxpayer some return on our money.
The purchases can be facilitated by the FHA foreclosure (REO) division. With stimulus funds, FHA will pay the full loan amount that is owed to the banks on the homes. Then, FHA can set up programs with the homeowners to make payments on the purchased loans that are equal to the debt to income ratio of 31%. Once this is done, FHA can then offer the homeowners a lease-purchase agreement.
Basically, the home will be owned by the government, the tax payers, and we will receive interest on these loans in the form of rent. The homeowners have the ability to buy their home back, at fair market value, after two years of payments to FHA not to exceed 5 years. Their rent payment history will be the primary determining factor for qualifying for the new mortgage.
The lease-purchase transaction can be converted by traditional mortgage companies and secured by Fannie and Freddie as all typical mortgages are. This takes the mortgages off of the government’s books and puts good loans on the lenders books. This program guarantees the American taxpayer at least some return on our money and thwarts the mortgage crisis.
