Why do we need to encourage the very same thing that got us here in the first place? People overspent and over borrowed, resulting in insanely high prices for everything (inflation), giving money to every person only exacerbates the problem. The problem with the people who took at ARM's is they couldn't afford the homes they purchased in the first place. Most of them are upside down on their investments.
Some people upside down will walk, and that's up to them. It hurts the banks, which in turn hurts all of us (they pass on their losses in other ways). Being upside down doesn't mean people will walk, though. If they want to stay, these FHA loans are a good way to stabilize their payments. I don't have much sympathy for people who speculated in real estate and drove up the prices. They're not going to qualify for more than one FHA loan in the first place, due to the rules. Nobody's giving anyone any money here, I don't see why it's scary. It's making fixed rate loans available to people who have homes priced above what FHA used to limit them at.
Those original teaser rate loans given by the banks were for a bigger payoff down the road. Now the government is getting involved with agreed upon contracts between the borrower and bank. The banks are now allowed to pass those loans over to Fannie Mae so the borrower can continue paying a lower rate they're having problems keeping up with in the first place? Doesn't make a lot of sense to me.
Fannie Mae isn't FHA, they're quite separate and unrelated. Fannie Mae is an actual lender created by the govt. in the FDR era - it's been pseudo-privatized since. The govt. putting a freeze on mortgage interest rates for existing ARMs _is_ getting involved in agreements between the banks and people. Relaxing the FHA rules allows the banks and people to negotiate new mortgages and pay off the old ones. People refinance loans all the time...
I'm not talking about the FHA, I'm talking about the increase in the loan limit offered by Fannie Mae. It's going to jump from $417,000 to $625,000. Lenders are going to find a way to manipulate this increase to get refi's for their customers. The problem is Fannie and Freddie are already getting killed and are not financially strong. They already have $4.9 TRILLION in mortgages they are accountable for. They need to both show they can clean up their mess before they take on anymore risk.
<div class='quotetop'>QUOTE (Shapecity @ Jan 25 2008, 10:50 AM) <{POST_SNAPBACK}></div><div class='quotemain'>This part of the stimulus plan really scares me though ... Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on <span style="font-size:18pt;line-height:100%">Federal Housing Administration</span> loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.</div> FHA I don't see Fannie Mae buying bad existing loans... This just allows them to buy the FHA loans if people convert. They don't have to buy 'em.
<div class='quotetop'>QUOTE (Denny Crane @ Jan 25 2008, 08:27 PM) <{POST_SNAPBACK}></div><div class='quotemain'><div class='quotetop'>QUOTE (Shapecity @ Jan 25 2008, 10:50 AM) <{POST_SNAPBACK}></div><div class='quotemain'>This part of the stimulus plan really scares me though ... Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on <span style="font-size:18pt;line-height:100%">Federal Housing Administration</span> loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans <span style="font-size:24pt;line-height:100%">Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.</span></div> FHA </div>
I'll have to read more about the details of the FHA, and I hope the intentions are right, but I just don't see how this can support itself when there's already a massive deficit. This is adding to it and eventually it's going to catch up with us.
It's no coincidence the maximum for both FHA and Fannie Mae is the same. The idea is that people can get FHA loans to convert ARMs to 30 year fixed - they still have to qualify. Fannie Mae's business is making a 2nd market in loans, and can now buy any FHA loan now.
The misconception is people don't automatically qualify for a refi whenever the rates are cut. You can't refi your home when you're upside down on it unless you have the collateral or money to pay the difference. The banks are in big trouble right now. Look at Citibank, they're paying 11% interest on their $7.5 Billion loan from Abu Dhabi. Why didn't they go to the discount window for the money and pay only 3 or 4 %? Either they don't have any collateral or their balance sheets are so far gone they can't qualify. Cutting through all the b.s. of this stimulus package I think it's is a front for a government bailout.
You're right about people having to qualify. If they don't, then neither FHA nor Fannie Mae is going to be involved It's an interesting coincidence that in GHW Bush's 4 years, we were mostly in recession and the S&L crisis cost the govt. about $175B in the bailout. Now we have GW Bush and it's the banks in crisis. The S&L bailout was a pretty big deal and was constantly talked about when people were making a big deal about the deficits we were running back then (the bailout payments ballooned the deficit amounts). 15 years later, the only stimulus package we have seen so far is the govt. sending out these rebate checks and a tax break on depreciation for companies. That's good for about $150B in total stimulus. We may see the govt. have to bail out the banks.
