Friday, August 31, 2007

Too little too late (thank goodness): Bush sends FHA squirt gun to put out subprime inferno

Don't get me wrong, I don't think there is much that the Feds SHOULD do. Just want to say to those poor souls who are grasping at whatever shreds of hope that appear (like a mirage) in the distance - this ain't gonna work.

From the Journal's piece on Bush's "plan to rescue delinquent homeowners" (NOT):

For now, the administration's primary vehicle to help homeowners will be the FHA, which doesn't originate loans but helps riskier borrowers qualify by guaranteeing their loans against default. By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said....

Still, the move will help only a small portion of homeowners -- and few in high-cost states such as California or New York -- because the FHA faces constraints on the size of the loans it can back and strict rules that borrowers must meet. The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment and raise the size of the loans the FHA can insure to as much as $417,000 from $362,790. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said recently that FHA reform will be among his priorities when Congress returns from its August recess, and a bill is expected to head to the full House this fall.

Not exactly buried in the fine print. But I guess for traders who can only either read headlines or listen to Jim Cramer, this may be too subtle a point. This "rescue plan" will help 80 thousand homeowners with mortgages less than 363k. I am underwhelmed. AND... I am glad because any serious attempt to actually bailout people who basically just borrowed a lot more than they should have is seriously bad policy.


Anonymous said...

The fact of the matter is people have upgraded into bigger and bigger houses (& mortgages) to make money when the market was going up. Now the market has reversed, they should think about downgrading.

The rapid escalation and free flow of money has taken housing out of the reach of many people whom are careful and not foolish with there money in southern California, and left them in rental property. Why should the federal government now use there tax money to bail people out?

It’s hard, but the free housing market doesn’t only work in one way! The sword cuts both directions as they say!

apprweb said...

Let's remember over 40% of these subprime defaults are investor/speculator that own several properties and purchased them only with the intention of selling at a higher price. NO consideration was given to income or cash flow from these properties. The tide has turned and they should not get a bailout!!!. We dont save the guy that bought stocks at the high and sold at the low, why should real estate be any different.

Anonymous said...

Definitely, shoot the speculators!
Everyone will feel poorer though as housing values decline.