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FHA Mortgage Reform could again be delayed by ridiculous political antics. Who else but a bunch of politicians could take what should be a simple sprucing up of a program which is basically good enough already, needing only to be expanded to include a few more people, and turn it into a multi-year ordeal.

The House of Representatives version of the FHA Reform Bill included a provision for a trust fund to “boost the supply of housing for low income families.” The Senate version of the bill left this foolishness out, but Congressman Barney Frank has announced his intention to fight to the bitter end for an affordable housing trust fund financed by surcharges on FHA loans, while the White House has announced it will kill the bill first.

“I think the lack of affordable housing is now clear to everyone as a contributing factor to the subprime crisis,” Frank said in an interview with Reuters. “If people want to make that a fight, I think we win.”

Apparently, Congressman Frank has missed lessons from the experiences of the last 40 years when government attempts to provide housing for low income families have created ghettos that whole generations of families can never get out of. He also must have missed the best economics classes at Harvard College where he might have learned the principles which would explain how government removing the risks for financial investors probably lead directly to the real estate bubble that sent prices out of reach of the low income families.

In the same interview, Frank announced his intentions to further “scrutinize” the mortgage industry this year. He is determined to keep on with this self-aggrandizement and grand-standing until he completely destroys the mortgage industry that has been doing its best to put all these people into homes. Of course, now they can’t pay for the homes because they are after all “low income” families and that is the mortgage industry’s fault.

There have been a lot of unethical, unprofessional people that entered the mortgage business over the last few years. They have really taken advantage of a lot of people. Of course, many of those people could have easily avoided being misled by doing even a nominal amount of checking around for more information and then insisting on understanding the documents they were signing.

Not to mention the many hundreds of thousands of people who are successful home owners due to all the programs everyone is complaining about now. Everyone seems to forget that there are still more of them than borrowers in trouble.

The terrible secret that no one wants to talk about is that the rising foreclosure rates are NOT yet being caused by “toxic” subprime loans. A very large percentage of the defaults are occurring before any adjustment is made to the loans involved and an even greater proportion of the defaults are occurring in areas like Michigan and Ohio where other non-mortgage industry related economic problems are occurring. Many others are occurring because of massive amounts of mortgage fraud that was perpetrated as much by the borrowers as anybody. California and Florida are prime examples of this and the reason I say not “yet”. Option ARMs (which are prime loans, by the way) may end up adjusting themselves into massive problems there.
It also is not the mortgage industry’s fault that this generation of Americans has no conception of waiting until they can pay for something before they buy it. People get in their new homes in spite of their credit problems and then they get offered consumer credit and then they buy everything they can get their hands. When they can’t pay for all that stuff, they go back and blame the mortgage broker who got them into a home they wanted, and they picked out, and qualified for without all that debt. And they knew all along that they would need to refinance in 2 or 3 years.

How many people are having trouble now after doing 3 or 4 cash out refinances over the last few years because rates were lower and they could get cash out and still lower their payment? Started out paying $100,000 for their house and now they owe $250,000 and are having trouble? This is an excellent strategy for someone with the discipline to put the money in a good investment so they have both their same house payment and new liquid reserves that can be accessed in an emergency. Instead most of them paid for trips, or big screen TVs, and SUVs and now they don’t have ten cents in the bank.

This machine gun litany of blame is not for the purpose of finding a scapegoat or trying to say the mortgage industry has no blame. The point of it is that most of these problems can be traced back to the unintended consequences of government actions in the first place. I know that it is a natural thing for politicians to feel that they are smarter and more capable of solving our problems than we are. Otherwise they probably wouldn’t be politicians in the first place. But these problems are too complicated and have too many interactions to be effectively micromanaged by bureaucrats. We do not need anything from the politicians to fix this problem except for them to make some simple minor straightforward adjustments to the standard FHA program.

You can count the changes needed on the fingers of one hand. We need the FHA mortgage limits raised just a little. We need to be able to get borrowers into houses without a down payment as long as they have a job and a decent debt ratio. We need to adjust the mortgage insurance so that FHA doesn’t lose money by insuring loans to the riskier borrowers and the good borrowers get rewarded with lower mortgage insurance. We need to do that without penalizing young borrowers who don’t use credit and don’t have credit scores. And that’s about it.

Politicians - please quit making the problems worse with your petty politics and try to be part of a real solution.

P.S. By the way, Happy New Year!


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Filed under: FHA Updates • Fraud • H.R. 1852 • Industry Information

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