How Smart is the Government in “Purchasing” Underwater Homes Through FHA Refinance?
Folks, I have seen a lot of wild things in the REO business over the last few years (HAFA, HAMP, etc.) but this one really takes the cake. The government is now apparently using TARP funds, to the tune of some 14 Billion dollars, to assist in providing special refinancing options for home owners who are "upside down" in their mortgages, by encouraging lenders to write down loans. Now for me, it raises some interesting questions:
1. If we have 14 Billion dollars left over from TARP, why don't we invest in entrepreneurs? You know, those thousands of small business owners who CREATE the vast majority of jobs in this country. Without going into a rant on economics, let me just say that you need to "get" that our economy is fueled by our own ability to service debt. Without jobs-not gonna happen for long, and recovery will be next to impossible. If you need more convincing see Peter Schiff. He "gets" it.
2. Just how in the world is the FHA going to handle a huge potential loss if this market does NOT recover the way that some wild-eyed optimists seem to think? Listen, those of you who have been REO brokers for any length of time KNOW that we need the FHA in order to cintinue to sell bank owned homes. Those of you who are new to or are just getting into the REO business, you will soon discover just how badly we do need them. Sure, the program calls for a 2.25% minimum equity safety net for the FHA funds, but looking at recent years, this percentage drop could occur almost overnight. Scares the pants off me personally.
3. The qualifications include some pretty tough provisions, including "full doc" requirements (which leaves all no doc and stated doc borrowers out), as well as a requirement that the borrower be current on their mortgage. Seems to me that these are the "strongest" home owners in the marketplace, who are not in default, who are no real threat to the market. ie: they are EMPLOYED or have resources to pay. I have a very "capitalist" view on things, meaning that I would say "leave well enough alone". The market will swing upwards and downwards. Sometimes with GREAT severity. Welcome to Capitalism my friends. Always worked before. Do we REALLY want to keep messing with it?
I'll let you formulate your own opinions on this new program. Regardless of your take on it, please stay informed on what is going on around you. Ignorance is not bliss guys. It can have grave consequences.