President Obama has revamped, yet again, his program to help
middle-and working-class homeowners, who already owe more
than their homes are worth or have less than perfect credit
ratings, refinance their mortgages. This is all about
getting past 2012 - not jump starting the economy - and
could create another credit crisis for Obama or the future
president to address.
Since early 2009, through QE1 (quantiative easing) and QE2
and now Operation Twist, the Federal Reserve has suppressed
mortgage ratesto jump start housing sales and raise prices,
and to assist homeowners with good credit and some equity
left in their homes to refinance.
All this was intended to increase purchasing power and help
lift the economy. And to some limited extent, it worked.
It stopped the sliding in housing values though it has not
raised them much and it has freed up some purchasing power.
However, smart homeowners did use much of the money saved
on monthly payments to pay down other debt - auto loans,
credit cards, etc.
The president initiated programs through Freddie Mac and
Fannie Mae to help homeowners refinance up to 125% or the
home's value. Those permit homeowners to refinance even
if they owe up to 25% more than their homes are worth!!!
The president now proposes to open the floodgate - like a
political candidate promising the moon, but this time
delivering the prize before the election and in a totally
irresponsible way!!!
He proposes to let homeowners still up-to-date on their
mortgages, refinance no matter how much the value of
their home has fallen below what they owe and without
cumbersome underwriters check - home appraisal and
rigorous credit and income checks. This is a recipe for
failed loans and another crisis in mortgage finance down
the road or huge losses for U.S. taxpayers that can only
be accomodated by even bigger deficits and printing money.
His new program is politically inspired and an economically
irresponsible act that could easily result in many more
foreclosures and another credit collapse in the future.
