Housing Mortgage Bill -- Vahl Comments

First, here are excerpts from an article that describes the Housing Mortgage Bill that will likely be signed by the President before the end of the year:

Boosting Fannie and Freddie
To help stabilize markets, which were shaken in the past few weeks by steep declines in the stock prices of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Treasury Secretary Paulson asked Congress on July 13 to give the Treasury power to provide a liquidity and capital "backstop" for the two companies.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

The bill allows Treasury over the next 18 months to offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies if necessary.

Shares of Fannie closed 12% higher and those of Freddie 9% on Wednesday. Fannie's stock is down 79% and Freddie's 84% over the past year.


Helping at-risk borrowers
The bill also aims to help homeowners at risk of foreclosure and to bolster regulation of Fannie and Freddie. Among other things, it would:

Increase the Federal Housing Administration's role. The FHA could insure up to $300 billion in new 30-year fixed rate mortgages for at-risk borrowers in owner-occupied homes if lenders agree to write down loan balances to 90% of the homes' current appraised value.

Lenders would also agree to pay upfront fees to the FHA equal to 3% of a home's appraised value. Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of their new loan balance. They must also agree to share with the government any profit they realize from selling or refinancing.


Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home's purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments. It would be reduced gradually for single filers with adjusted gross incomes above $75,000 and for joint filers with AGIs over $150,000.


Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance. The seller-funded program is largely the reason why the agency's reserve has fallen by $4.6 billion, according to FHA Commissioner Brian Montgomery. Currently, that reserve is roughly $16.4 billion.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.


Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties.

Quick comments by Vahl:

I personally approve of this bill. It's close enough to my Earth-Never solution to the Housing crisis. The only thing that bothers me is the removal of the seller assistance for down payments. I understand why it has to be this way ... it just potentially delays my first home purchase. Since the home I'm looking at is EXTREMELY cheap, I know I'm not a bad borrower if I get down-payment assistance. This is what happens when government is forced to step in to solve a problem -- the whole populace is punished because of a few bad apples.

Don't believe me? Have you flown anywhere lately?

Anyway, I accept this reality.

Winners: People currently in danger of losing their home to foreclosure.

Losers: People who've ALREADY lost their homes to foreclosure.

LME Practitioners rewarded: The banks, some very lucky thoughtless borrowers.

I pray that Repubs and Dems who support off-shore drilling will filibuster this bill in the Senate until their voice his heard and their bill(s) are brought up for a vote.

Buffet Talking Sense

Buffett, the billionaire investor behind Berkshire Hathaway , fingered "exploding" inflation Wednesday as the biggest risk to the economy. "I think inflation is really picking up," Buffett said on CNBC. "It's huge right now, whether it's steel or oil," he continued. "We see it everywhere."

As I have blogged about in the past, lowering interest rates to 1% a few years ago was a bad idea ... lowering them to 2% recently was a repeat of that mistake.

Instead of having economic turmoil centered around mortgage lenders and overzealous home investors, the lower interest rates has, in effect, spread the contagion to the rest of the economy, via the weak dollar. Higher gas and food prices are the result.

The more the Fed attempts to boost an ailing sector, the more they multiply the negative effects on the whole economy.

And now, I will retreat back into my cave of obscurity, whilst the geniuses continue to ignore my seemingly prophetic words and suggestions.

I've Lost All Faith in Banking Executives

It is with a sorrow-filled heart that I must state here on the WWW to all five of our readers that, in fact, BANKING EXECUTIVES ARE CLUELESS. They are completely out of touch with the reality out here, where the houses are ... where mortgages are more than just a blip on a balance sheet.

It's like watching Peter Sellers negotiate with the Russian Premier while a lone bomber journeys into the heart of the Soviet Union, about to set off the Apocalypse.

***

Let me take you back to two weeks ago. I was speaking with a friend named Arnie who owns two homes. He lives in one, and rents out the other to a cousin. The cousin has decided to take advantage of the plethora of foreclosures on the market, and buy a steeply-discounted home -- nothing wrong with that, even though Arnie felt Betrayed (tm) that the cousin didn't offer to buy the home he was renting ... you know, the one that Arnie spent tens of thousands of dollars fixing up.

"That's fine."

So, Arnie was considering letting go of both homes. "What am I gonna do? I can't find a trustworthy renter, and my other mortgage is killing me."

Now, Arnie is in better shape than most. He's CURRENT on both mortgages. He owes approximately $300,000 on both. I told him that if he were in San Fransisco, he would be sitting pretty -- they WISH they could have a cheap $300,000 mortgage over there! He and his wife both have stable jobs. They earn enough money to hold on to both properties. It would be tough, but doable.

That dose of Perspective (tm) was not enough. Arnie still questioned the wisdom of paying close to $3,000 a month on two properties -- $36,000 in a year ... $360,000 in TEN YEARS -- when he could rent the same home nearby for only $800 a month. He reasoned that he could put the money he'd be saving on the mortgages into savings, and buy a home with CASH in three to five years. Meanwhile, there's absolutely ZERO guarantee his homes will be worth the money he puts in one decade from now.

I tried more Perspective (tm). I explained that his credit is valuable, and should not be tossed away so easily. I explained that just b/c other home buyers are jumping off the proverbial Brooklyn Bridge, it doesn't mean he should join them. I stated that the market remains unpredictable -- the experts didn't see the crash in prices. Why would they see a recovery?

I finally stated the following:

Have you contacted the bank? You're current with your mortgages. I'm sure they will help you. The banks can't POSSIBLY be as arrogant as they have been recently. In the past, they would've held firm and forced you to pay or walk away, but now? Come on! They would be STUPID not to negotiate with you!

Go to their website. I'm sure they have programs available for honest customers like yourself. Surely they're willing to work with someone who is CURRENT on their mortgage.

Right.

I looked up his bank's website. The best they could do was convert his current mortgage to one with a longer term, and possibly lower interest rates. Thanks, and have a nice day.

Offering a lower monthly payment is not what guys like Arnie, who feel like they're being SCREWED every time they pay their mortgage ... who feel like "The Man" is benefiting from his timely payments, and is deaf to his pleas for help ... offering a lower monthly payment to a person with A+ credit is a slap in the face.

***

But that's not all, folks ... enter: The SHORT SALE.

Ah, yes, the short sale. The balm that cures an indebted buyer's ills.

Oh, you didn't know what a Short Sale was?






Well, guess what? Realtors (ahaha) don't want to do Short Sales. Why, you ask?

Their official pitch is that:

1. It takes 4-6 weeks for the bank to sort through all the bids.
2. If there are a lot of bids on a home, the bank will assume there's demand and jack up the price.
3. The seller sets the price low to draw in potential buyers ... yet the price is not officially approved by the bank.

The DailySkew translation of the Realtor's (tm) pitch is as follows:

1. I needs to get paid. I got my own mortgage to pay, biootch.
2. I can get a sweet foreclosure with less hassle for you.
3. The bank don't give a damn about the seller, and neither do I!

So, the "Bottom line" is that the banks and Realtors (tms) have "Two wooorrrds for ya!"



One final thought: it occurs to me that the banks are waiting for Washington D.C. to come up with a solution. They're waiting for our Congressmen and women to FORCE them to lower the principal owed by people like Arnold, and ENCOURAGE honest buyers to stick with the current system.

So, not only are the bank executives STUPID, but they're GUTLESS.

They're AFRAID to take a course of action that will LOSE MONEY IN THE SHORT RUN IN ORDER TO SAVE THE MORTGAGE SYSTEM AS WE KNOW IT! WHAT A BUNCH OF GUTLESS, SHORT-SIGHTED FOOLS!



Look, our economic system is based on FAITH. The greenback requires FAITH from the masses. It requires BELIEF in order to have VALUE. HELLO.

By holding firm ... by continuing to be ARROGANT, the banks are eroding faith and belief amongst the people.

And, we, the people, are going to eat, eat, eat what they sow ... and weep.

No wonder they're arrogant, gutless, and stupid. There's no motivation to be any other way.


Maybe the anti-matter cloud that is hitting our banking system is a good thing, after all.