The Definition of Insanity

Back to my roots on the global housing fiasco...

The definition of insanity is doing the same thing over and over again and expecting a different result. Well, the powers that be in Washington have decided to start banging their heads against the wall again but believe that this time, we will have a positive outcome.

See the article below regarding the latest housing bailout (there have been so many now that it is no longer possible to keep count)... This bill was passed by the house of reps today with a new 125% LTV cap.

Obama Mortgage Refinancing Program May Expand, Lockhart Says
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By Dawn Kopecki and Jody Shenn
June 19 (Bloomberg) -- President Barack Obama’s program to help more homeowners refinance may be expanded to include borrowers who owe more than 105 percent of their homes’ values, Federal Housing Finance Agency Director James Lockhart said.

The Obama administration is considering allowing Fannie Mae and Freddie Mac to refinance loans with current loan-to-value ratios of 125 percent or higher, Lockhart said at a National Association of Real Estate Editors Association conference in Washington yesterday.

The Home Affordable refinancing program, announced Feb. 18, is part of the U.S. government’s efforts to stem soaring foreclosures and bolster consumer spending.

The 125 percent level on loan-to-values would preserve the ability of Fannie Mae and Freddie Mac to package and sell the debt into so-called real estate mortgage investment conduits, he said. While 125 percent loan-to-value ratio is on the table, Lockhart said “it’s not necessarily the number we’re going to end up with.”

The program has been “seeing a slowdown” as mortgage rates increase, he said. The average rate on a typical 30-year fixed loan was 5.38 percent this week ended yesterday, according to McLean Virginia-based Freddie Mac. The rate is up from a record low of 4.78 percent at the end of April.

Under the program, borrowers with loans already owned or guaranteed by Washington-based Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 105 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have.

Warehouse Lending

Lockhart also said yesterday that his agency, the companies’ regulator, is looking at ways for Fannie Mae and Freddie Mac to help the so-called warehouse lending market, which provides financing to smaller, independent mortgage companies, amid a credit crunch.

While Fannie Mae and Freddie Mac are prohibited by law from lending directly to other firms, Lockhart said they may be able to provide the market some liquidity by committing to purchase multifamily and other loans. The U.S. seized Fannie Mae and Freddie Mac and put them under FHFA’s control in September.


NC: So we are going to solve the housing fiasco by allowing people to borrow 125% of their home's value???? Isn't this what got us into this mess to begin with. Here are just a few problems with this idea:

1) You are locking people into a mortgage that leaves them 25% in the hole right from the get go. In other words, on a $250,000 mortgage - if they choose to walk away from their house rather than do this asanine refinancing - they immediately save around $70,000 (which is probably close to 2 years of after tax income for someone with a $250,000 mortgage.

2) Fannie and Freddie are locking into mortgages where they have negative cushion on a loan being given to someone who is already in the process of defaulting on their current loan.

And don't forget that Fannie and Freddie are the two already insolvent companies that are sucking an aggregate of $200 billion in blood money from the taxpayers. So its not like they have a lot of cushion against the inevitable defaults they will be facing on these loans.

3) The Government now wants to bailout the so-called warehouse lending market which provides financing to small-time mortgage brokers. Where do I begin here?

Here is a start: mortgage brokers are those scumbag hucksters who preyed on the elderly and other non-financially savvy people to put them into subprime and adjustible-rate loans that they couldn't pay and brought the global financial system to the brink of total meltdown.

That is a great plan. Look - I am still generally positive on Obama. But he needs to put together a new financial cabal. A good start would be to can Bernanke and (deer-in-headlights) Geithner. These guys are dangerous.