The XBroker

The Ubiquitous, Perpetual Mortgage Solution Circle Jerk

Project Lifeline, increasing Conforming and FHA loan limits, rate freezing...*Yack*

The parables are mounting up in the face of Congress' threat to move H.R. 3609, The Emergency Home Ownership and Mortgage Equity Protection Act of 2007, and Senate (S. 2136, The Helping Families Save Their Homes in Bankruptcy Act of 2007), crafted to inoculate homeowners against the U.S. mortgage foreclosure epidemic by allowing modifications while in bankruptcy proceedings, into legislation.

What's going down behind the scenes amounts to little more than clever posturing by the banking industry and/or their government agencies infected by cash infused lobbyists, IMHO. None of the above 'solutions' provides anything new and/or unique to the floundering homeowner, instead representing pleas and/or diversions by the banking industry for Congress not to interfere with their business.

Project lifeline may be handy for borrowers in arrears with the bank, on a case by case basis, essentially (and solely) at the banks discretion. The Bill that was passed the loan limits is an exercise in voodoo math, only benefiting a small piece of the most over inflated (yet still valuable) areas of the country.

Rate Freezing appears to be the most potent foreclosure countermeasure, then you read classic tidbits like:

On Capitol Hill yesterday, some Republican lawmakers and their aides expressed concern that the plan would anger homeowners and others who stayed out of the subprime mortgage mess.. These all sound like good ideas until you take the time to read the fine print.

Darren McKinney, 48, a renter in the District, said he has been waiting for housing prices to fall so he can buy a condo without resorting to a dubious loan. He turned down an opportunity to buy his 600-square-foot apartment for $310,000 in late 2004 because he thought it was "absurdly overpriced."

Now the government is rewarding people who made irresponsible decisions and bought homes beyond their means, he said.

"There are those of us who purposely sat on the sidelines during the course of the last three years while the senseless frenzy was going on, and we presumed the free market would be allowed to correct itself," McKinney said. "The government is now meddling in the market and looking to prop up lenders and borrowers alike, and those of us who wisely bided our time get screwed."

-Washington Post

What-Huh? Something tells me this is the same guy who would be 1st in line to sue the bank for 'selling him on the wrong loan'. Rate freezing is a far better proposition than say, ummm, imminent value draining short sales and foreclosures that would penalize good borrowers who had the balls to buy a home. Sorry the entire real estate market didn't depress for your personal gain. I understand being 'bearish', but WTF?

There seems to be a divide between the White House and Congress on what could, should and needs to be done. The Bush Administration sanctions and ratifies the psuedo-benefit programs like Project Lifeline and rate freezing, yet Congress seems intent on taking things one step further, beyond the banks acceptable tolerance for control of modification. There's some serious spinnin on Capitol hill as Democrats are pushing for more tangible consumer aide while the Republicans are incentivized to pursue solutions that give big business the ability to save face, on their terms, IMO.

Banks feasted when they could, now it's time to reap whats been sowed. Bulls and Bears make money, Pigs get slaughtered. Banks are pigs, lying pigs at that. A new study by Georgetown professor Adam Levitin suggests recent claims by the Mortgage Bankers Association that Bankruptcy facilitated mortgage modifications would result in substantial interest rate spikes, to the tune of 200 basis points, are a complete fallacy. Keep in mind that these are the same bankers who fight for preferential cost disclosure requirements when compared to the broker community, so Prof. Levitins findings seem entirely plausible.

While these Bills will probably add to the limited assistance Project Lifeline, rate freezing, and new loan limits shall offer, there are still some shortcomings:

Relief is limited to mortgages originated January 1, 2007 going forward. Most of the 'damage' was done well prior to this date, leaving a bulk of the neediest borrowers out to flail in the wind. I don't understand this provision at all.

Only sub-prime (non-conforming) borrowers qualify. My guess is finagling with Fannie and Freddie backed loans is a little to close to home, even for Congress. Thats a shame because I've heard from plenty of people who have/had adjustable Conforming loans and are in a world of hurt. These are supposed to be PRIME borrowers..?

The modified rate will be equivalent to the market rate for 30-year conforming mortgages plus a risk-premium. Plus a risk premium is pretty ambiguous.

I'm about tired of these half baked 'solutions', there are so many of them rolling out with few making real sense or a real difference. Maybe the whole will be greater than sum of these parts...until then it's a bunch of the same people talking to each other saying the same things, while patting each other on the back and allowing us to listen in...

Comment balloon 1 commentJeff Corbett • February 27 2008 06:50PM
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