Posts tagged as:

foreclosure help

Mortgage Rescue: Image Is Everything

by Gina Gardner on July 24, 2008

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Sometimes it feels like our leaders pay more attention to how legislation will play in the media than how it will play in real life. If I understand it correctly, the mortgage rescue bill that passed in the House has a couple of provisions that I find a little disturbing.

First, in order to qualify for an FHA refinance out of your old mortgage, your debt-to-income ratio has to exceed 31%. So, are we in effect providing an incentive for those who want a bailout to increase their debt in order to qualify? That seems counter productive. This is supposed to be mortgage rescue, not credit card rescue. I think that rather than looking at the entire DTI they should just consider the front end ratio, that is housing expense divided by income. If the credit card companies are stupid enough to give  unqualified people unsecured lines of credit, why should taxpayers bail them out? It’s bad enough that homeowners are blowing off their mortgages but paying their credit card bills.

Second, why take HUD’s ability to implement risk-based pricing away? Those who are riskier borrowers should pay higher insurance premiums so we don’t all get caught holding the bag. Anyone who drives understands the fairness in this. I have a fast car and am unfortunately on a first-name basis with the local traffic court judge–naturally I don’t expect the pay the same for auto insurance as my careful neighbor with the Volvo wagon. But our representatives have apparently decided that HUD has to charge everyone the same fees regardless of their risk profile. In effect all borrowers end up subsidizing the shaky ones, or guidelines will have to be tightened (which we don’t need right now), blocking the less-qualified from home ownership, or the premiums will (as they are now) be insufficient to cover the losses and the taxpayers will get stuck with the bill. All because no one in office wants to be painted as a bad guy who hates poor people.

Finally, tagged onto this is a $30 million tax credit for auto makers. Apparently this provision was a no-go on its own so someone glued it to the housing bill. And then the gutless reps who don’t want to be painted as obstructing rescue efforts allow it to be rammed through.

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FHA: Here Today….

by Gina Gardner on April 11, 2008

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While the Bush administration is talking up its mortgage rescue operations for delinquent borrowers, a New York Times article implies that the cash-strapped agency may not be able to pony up. For the first time in its history the Federal Housing Authority faces a deficit, primarily due to defaults on loans featuring seller-financed down payments.

These loans comprised about 35% of all FHA mortgages and are going sideways at a rate of 2 to 3 times that of other FHA mortgages. Either those with no stake of their own in the property are more willing to walk away from their obligations or the kind of people who can’t come up with any down payment at all are the same people who aren’t capable of repaying a mortgage.

Late-comers to the party include homeowners as much as 3 months’ behind on their mortgage payments — and FHA (another way of saying “taxpayers”) will be expected to bail them out. Even borrowers with negative equity may be eligible. Now, if buyers with no stake in their homes are repaying at such poor rates, what are those with negative equity going to do? And who should step up and pay for this mess? Apparently homeowners whose real estate investments went sour or those who blew their money on expensive cars and fun trips don’t mind asking fellow taxpayers (and their neighbors) to absorb the consequences of their decisions. Yuck.

So who deserves help, and who should be asked to provide it? Representative Ed Royce from California feels this bailout is a mistake. “We risk transferring this default risk right onto the backs of taxpayers,” he claims. Unpalatable, but what else can be done? Sometimes the best solution for the greatest number of people is not the one that stakes out the moral high ground. As US Representative Barney Frank says, “I want to help the least undeserving people around.”

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