Friday, February 6, 2009

Americans Will Be Refinanced By Any. Means. Possible.

Homebuilders flying today - that was my pick for stealth bull market sector for 2009 in my 2009 Outlier Predictions [Dec 16, 2008: 13 Outlier 2009 Predictions] - and why should they not be when we are going to give away homes for (near) free.

Sometimes as I read these stories I feel like I am reading a piece of fiction. What we are doing simply cannot be true. I cannot wrap my mind around all the potential unintended consequences we are going to be created with this smorgasbord of proposals.

My mind almost imploded when I read this one in December [Dec 11: Fannie, Freddie Consider Waiving Appraisals for Refinancings]

I wrote that 2009 will bring us "innovations" and "interventions" like nothing before (with Fannie and Freddie as the centerpiece of the toolbox) so I guess I should not be surprised by this proposal. That said, my jaw hit the floor when I read it. I hit refresh a few times - checked the calendar (nope, not April 1st) - certainly this must be a hoax.

So get ready for this; no matter what your home appraises for - if it falls 10%, 20%, or 30% below purchase price, and you are underwater - you can STILL refinance under the latest proposal being floated at the full original mortgage value. Imagine a nation of people whose value of home when bought was $280K and now its $180K (as it would be appraised), but instead of being underwater $100K (i.e. out on the street when unable to refinance) the generosity of government gives the full $280K at a lower rate - 4.5% of course as part of the Treasury plan being floated. So you see where this is heading - a nation full of phony mortgage values (set by government) at a phony rate (set by government). Hello USSAR.

And the hits keep coming - check out the credit scores below in this story from Bloomberg "Fannie Mae to Loosen Rules for Home-Loan Refinancing". As you do please realize that in the mortgages we've been modifying in 2008 the delinquent rate is already OVER 50%!!! in under 6 months! [Dec 8: More than Half of Homeowners with Modified Loans are Back in Trouble] Not 1 year later, not 5 years later. In 6 months! And that's before the teeth of the recession set in during the late portion of 2008. As people lose jobs in increasing manner the default rate will only increase - we are throwing money down a black hole and simply creating more burden upon burden on "someone" who eventually has to pay.
  • Fannie Mae, the mortgage-finance company under U.S. government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing. Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases. (THAT'S WHAT GOT US HERE IN THE FIRST PLACE!!!)
  • The company, which accounts for more than 40 percent of the $12 trillion in U.S. residential mortgage debt, is seeking to break a “logjam” in refinancing and allow more homeowners to take advantage of near-record low interest rates. The program “will streamline” refinancing “for potentially millions of current mortgage holders,” he said.
  • .... Fannie Mae, smaller rival Freddie Mac and the companies’ regulator are considering permitting borrowers to refinance even when the consumers owe more than their homes’ worth...
  • Fannie Mae’s changes will include allowing borrowers... to qualify for refinancing with credit scores below its 580 minimum. (!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! below 580?? I mean, it would take EFFORT to bring your score that low! A lot of EFFORT!)
I give up.

[April 13, 2008: Unintended Consequences of the Coming Socialization of the Housing Market]

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