Friday, February 20, 2009

Sub-Prime Loans Redux

From the Wall Street Journal...
Existing borrowers who may not qualify for Fan/Fred refinancing can still receive loan modifications that move their mortgage payments down to 31% of monthly income. In either case, no effort will be made to verify that recipients of aid were truthful on their original mortgage applications. Given that mortgage fraud skyrocketed during the housing boom, and that the Obama Administration intends to assist up to nine million troubled borrowers, we can say with certainty that the unscrupulous will be among those rescued.
In fact, the program encourages mortgage servicers to keep the payments low only for five years, after which rates will rise. During the housing bubble, these were called "teaser" rates. Modifications also may extend the term of, say, a 30-year mortgage to 40 years, but still leave the borrower underwater. Research at Credit Suisse suggests that borrowers without equity are not a good bet to stay current. What research cannot answer is how many people will seek assistance when they are told that a new federal program is available to cut their mortgage bill.

No doc loans? Check. Teaser/adjustable rates? Check. 40-year loans? Check.

This plan perpetuates the sub-prime loans that triggered the crisis!

Is there any way to keep these borrowers in their homes without a sub-prime? If not, why are we trying to keep them in their homes? That's just kicking the problem down the street!