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Mortgage Miasma

For those who are curious here's a link to the official text of the Prez's announcement on Thursday regarding mortgage loans and foreclosures. For obvious reasons the media's reporting of these items is and will continue to be so agenda-driven as to be useless.

Here's a synopsis and quick analysis of the administration's key points:

1. Unilateral rate freeze re: ARM loans

Unnecessary and partially self-defeating dog-and-pony show.

As stated previously this move will do little but to delay by at least 1-2 years the final bottoming out of the housing market. Then again, a private and unilateral rate freeze brokered by the Treasury Dept. and HUD is a much more palatable scenario than the ghastly nanny state legislation circulating in the media/Democrat Congress. Private agreements are one thing. Laws are something else entirely.

2. Expanded FHA loans

Bad move. That's a public-money loan insurance program. The less of that the better.

3. Expanded loan disclosure requirements

Very bad move. More government isn't the answer. If people can't read and understand a legal document germane to the biggest purchase of their lives they deserve to get tossed out onto the streets.

4. Tax relief for mortgage borrowers

Very good. For obvious reasons.

5. Public-money mortgage counseling

Very bad. For obvious reasons.

6. Legislative reforms re: Fannie Mae and Freddie Mac

Bad move. Those are government-sponsored money vehicles. The less of Fannie and Freddie the better. The private sector can provide its own liquidity for mortgage loans.


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Comments (11)

You're wrong on #3, I think... (Below threshold)
matthew:

You're wrong on #3, I think. If the language were made plainer, the adjective "predatory" wouldn't have as much traction in financial discourse as it does now. Why would this be an expensive, government-expanding idea? They already have to follow disclosure rules; changing those rules to protect tens of millions of none-too-bright consumers shouldn't be too painful.

Neither Fannie Mae or Fredd... (Below threshold)

Neither Fannie Mae or Freddie Mac are government funded, but "reform legislation," having to be born of Congress, could hardly improve the situation.

"Disclosure" is what all that fine print is about now. If people are too stupid to read and understand these things, they either should hire an attorney to explain them or just not enter into transactions beyond their comprehension. As a side note, if the public education system is incapable of producing a citizenry which can read and understand contracts in common usage, we need to pull the funding plug and find another way.

The big problem with all the proposed "solutions" is that they penalize the lenders who merely complied with the law and reward defaulting borrowers who broke their contracts.

Am I the only one to see th... (Below threshold)
Susan:

Am I the only one to see the parallels between this and the illegal immigration brouhaha? In both instances, we are seeing (attempted) government legislation which not only sanctions and rewards bad (stupid/reckless/illegal) behavior, but also sets, in my opinion, a very bad precedent.

Who's up for a few rounds of flooding switchboards and emailboxes with strongly-but-politely-worded objections to this? Anyone? Anyone? Bueller?

Matthew: no amount of addit... (Below threshold)

Matthew: no amount of additional disclosure is going to 'protect' those who are too stupid to read and understand the fine print or those who are so greedy that they ignore the likely consequences of their actions. It's not the lack of disclosure but rather their willing ignorance of the terms of their contract that led to the situation we're in.

For my own edification - ca... (Below threshold)

For my own edification - can someone answer this:

Is there anyone/where that tracks totals on things like foreclosures, # of privately owned homes, etc?

Tell ya what I'm thinking, maybe it'll make more sense - we're going to be seeing for a while now the "RECORD NUMBER OF FORECLOSURES!" blah blah blah for a while from the press and talking heads, but I'm pretty sure we have a record number of homeowners around, too. It's like the inflation deal, I can look at the cost of a barrel of oil and use an inflation calculator and see what the inflation-adjusted price was in 1980 or whatever. Is there somewhere I can go to see the number of foreclosures in 1965 vs. the number of privately owned homes to put this in perspective? Anybody?

We're predicting a tidal wa... (Below threshold)

We're predicting a tidal wave of "credit score suicide" as borrowers sabotage their finances in order to qualify for the ARM freeze:

http://www.creditbloggers.com/2007/12/how-to-drop-you.html

Steve S. -- insofar as any ... (Below threshold)
matthew:

Steve S. -- insofar as any ignorance was willing, I agree; but if uneducated/unintelligent people were taken advantage of (and it's clear that that did happened quite a bit in recent history), then that's not the same thing as me going to a dealership, buying a car, and pleading ignorance when I can't make interest payments. Some people were preyed upon, and I see no problem with taxpayers incurring a very modest expense to ensure that sleazy lending becomes more difficult to get away with.

Matthew;Current di... (Below threshold)
Aog Author Profile Page:

Matthew;

Current disclosure laws have produced a blizzard of fine print that people ignore because there's so much of it. Why do you think that even more fine print will improve the situation?

I've been wondering whether... (Below threshold)
COgirl:

I've been wondering whether giving people a break on the costs of refinancing might make more sense than freezing the rates on the ARMs. Let it apply to everyone as opposed to those who broke their contracts. I confess to feeling (yet again) that I am being punished for doing the right thing and paying my mortgage every month.

Matthew, I've talked to lit... (Below threshold)
SPQR:

Matthew, I've talked to literally hundreds of people who were complaining about their home mortgage. And I've seen a lot of people claim to be taken advantage of in mortgages. Each time, there was a disclosure page that had big bold print that described the exact terms of the loan that the borrower was claiming ignorance of, with the borrower's signature on the bottom.

99 per cent of the time, it is pure BS from people trying to invent an excuse for their own bad decisions.

Lemme know when housing, as... (Below threshold)
ras:

Lemme know when housing, as in ownership, gets moved back into the CPI to mask off the increased inflation that comes from govt printing money to pay off the probs. You gotta know it's all coming.

House prices per se will not free-fall; they'll mostly go sideways while inflation brings their real value down. The govt gave us, via implication, their broad timeline, too, in which they expect that inflation - plus whatever more nominal price fall does occur ... 20%? - will be sufficient to obviate the walk-away strategy for those borrowers in the deepest.

We'll see if the govt can bandage the wound (yes, largely of their own making) or not. The bail-out is motivated less by a compassionate desire to help out debtors or to buy their votes than it is by a perceived need to prevent excessive defaults in the short-term. The coefficient of friction once you start sliding is always much weaker, and that's what they're worried about.

As for the rest ... e.g. increased disclosure requirements ... simple window dressing.




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