When Does the Madness End?

How long do taxpayers in this country have to put with ineffective and inept leaders overseeing matters when it comes to the financial crisis?  The ignorance and ineptitude eminating from Washington is alarming.  Every week it seems, brings a new boogeyman, a new smoking gun. And each purported “solution” involves more and more taxpayer money being thrown down a cesspool of government hubris.  This week, the evil of choice is home foreclosures.

The headless chickens start running:

Federal Reserve Chairman Ben S. Bernanke said the U.S. government must step up efforts to prevent home foreclosures, with options including buying delinquent mortgages and providing bigger incentives for refinancing loans. 

The government could buy “delinquent or at-risk mortgages in bulk,” then refinance them through the federal Hope for Homeowners program, Bernanke said in a speech at a Fed conference in Washington. Congress could also help reduce loan rates and lender insurance premiums, he said.

Each option would require “some commitment of public funds,” Bernanke said, underscoring his position that the central bank alone can’t revive the economy through its interest- rate cuts and emergency lending programs.

The HFH program went into effect in October.   Under the program, banks would take on delinquent loans while the borrower switched into loans with lower rates to make payments more affordable. Meanwhile, the lender would have to take a haircut on the bad loan.  Sounds like something the government would come up with: socializing losses and rewarding incompetence.

It didn’t take long for the geniuses in charge to realize that forcing banks to take on riskier exposure while forcing them to take losses, wasn’t such a good idea.  So what did they do? They relaxed certain requirements of the program to make it palatable for lenders to participate in the program.  More idiocy:

 The changes include increasing the loan to value ratio (LTV) from 90 to 96.5 percent for some H4H loans; for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. Raising the LTV ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders, according to a HUD press release regarding the announcement.

 So while the Fed determines that it’s the Federal government’s job to bolster a home-buyers market that isn’t there, the Henry Paulson-led Treasury is trying to muscle mortgage rates lower by flooding the financial system with dollars and force banks to price loans at a discount: 

Both the Wall Street Journal and the Washington Post reported that the proposal would have the Treasury buy securities to finance new loans for home purchases. 

Mortgage lenders would have to set extremely low interest rates — as low as 4.5 percent for a standard 30-year fixed-rate mortgage.

According to the tentative plan, the Treasury would buy the securities from Fannie Mae and Freddie Mac, the housing giants that buy most mortgages from lenders, unnamed sources told the papers.

Treasury officials say the proposal might just stem the plunge in home prices by allowing borrowers to secure larger loans, which would then bolster demand and drive up moribund home prices.

Does this all sound familiar? It should.

It’s exactly the same type of government interference and chicanery that was the basis of implementing CRA.  The same shortsightedness that led to government interfering in the marketplace, by forcing banks to make loans they would otherwise not make.  The same threat of fines and harrassment by the government that started us on this road of financial meltdown, is happening all over again.  At this point, foreclosures need to happen, the market needs to take care of the excesses.  Amazing how government hubris always comes full circle, no matter who’s at the wheel.

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Explore posts in the same categories: Government Bailouts

Tags: Ben Bernanke, CRA, Federal Reserve, Henry Paulson, Hope For Homeowners Program, mortgage crisis, mortgage loans, mortgage relief, TARP, US Treasury

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