Friday, March 26, 2010

HAMP 3: Principal Reductions / Debt Forgiveness

Yet another version of the HAMP program was announced today by the White House. This new twist will see that taxpayer funded TARP money will pay banks and lenders to forgive mortgage debt (typically 2nd liens) and also decrease the outstanding principal of 1st mortgages that are underwater to affordable front/back end debt/income ratios. Subsidies will also be given for those who can make no mortgage payment at all.

Meanwhile, over half of all the taxpayer funded loan modifications already performed by the growing frenzy of new government programs designed to fix the housing market have defaulted (again) after just nine short months.

Lastly, for owners up to date on their mortgage payments, who did not irresponsibly take cash out of their house in a HELOC, or whose house is not underwater, there is no bailout for you. If you're a renter it's the same story. There is nothing for you but ever increasing taxes so as to "help" keep homes affordable. That's rather ironic.

If the government truly wanted affordable housing, they'd force banks to mark their balance sheets to market again (as in the past until March 2009), allow prompt corrective action and foreclosures to clear the bad loans, and let home prices fall back in line with wages. If our elected officials truly cared about affordable housing, they'd let the free market take it's lawful and natural course. That would work out well for everyone -except the banks, mortgage insurers, and the NAR.

Who has more influence in Washington: US citizens or the FIRE economy?