Wednesday, July 01, 2009

Fannie And Freddie Will Allow 125% LTV Refinancings

Sickening. Just sickening. From the Washington Post article:
The effort is an acknowledgment by the administration that falling home prices limited the impact of its housing program, Making Home Affordable. Under the program, homeowners could refinance if their mortgage did not exceed the value of their home by more than 105 percent. Now, the administration is expanding the program to homeowners who are up to 125 percent underwater on their loan.

The refinancing program is central to the Making Home Affordable program, which also includes measures to help distressed borrowers stay in their home. But the refinancing program is focused on borrowers who are current on their mortgage but who can not take advantage of historically low mortgage rates because their home values have fallen. The refinancing program is still limited to borrowers with loans backed by Fannie Mae and Freddie Mac, the government-backed mortgage financing companies.
Who the deuce up in Washington thinks making terribly underwritten loans to borrowers that showed a fundamental lack of good judgement the first time around is a good idea? I think it was Ben Franklin that said the definition of insanity is doing the same thing over and over again and expecting it to come out different. If Franklin's right, then this is insanity.

We first reported on the ramifications of bumping LTV limits to 125% a few weeks ago. Apparently enslaving an entire swath of the population as indentured servants trapped under an untenable mortgage is part of The Administration's plan to ease the crisis. Good luck with that.

As friend of TILB Tom Woods will let anyone that's curious know, recognizing losses on bad debts and moving them through the system is inherent to creating a platform of stability that an economy can begin growing from. Allowing the system to self-cleanse lets people figure out who has capital, how much capital they have, and what is available to be invested in. Fairly useful questions. These are fundamental to capital owners choosing to deploy their capital.

Until then, capital will rest and wait. Any outcome that is not an outgrowth of natural cleansing is built off of a platform stabilized by twigs, string and hope.

The Tooth Fairy Economics of spending more money that we do not have as part of a solution continues unabated.

As an aside, can we please end the farce of these being publicly traded companies? The amount of loss that these two are going to eat and thus We The People are going to fund is going to make AIG look like child's play. Fan and Fred will generate hundreds of billions of losses before all is said and done.

Given that we are home renters, TILB is particularly offended by this sort of ugliness. It quite clearly brings to mind today's Liberty Quote of the Day by James Madison.

Sometimes we here at TILB feel like turning around, opening up our window, and verbally pillaging passerbyers with George Carlin's seven words.