Bringing back Sub-prime loans -- BY THE GOVERNMENT

The details of president Obama's plan to assist homeowners to refinance their mortgages are out. Here is how the New York Times described them:

The president’s latest proposal was aimed at two groups of eligible homeowners: about 11 million whose loans are backed by Fannie Mae and Freddie Mac, and about 3.5 million whose loans are privately held. Those estimates include only homeowners who are current on their loan payments, have a credit score above 580 and are paying interest rates high enough to make refinancing attractive. For those with privately held loans, the president will ask Congress to allow the Federal Housing Administration to refinance their mortgages in a program to be financed by a fee charged to large banks based on their size and the riskiness of their portfolios. The estimated cost of the program would be $5 billion to $10 billion, depending on the number of participants. Only houses whose values fall within F.H.A. guidelines, from about $270,000 to $730,000 depending on location, would qualify."


Think about this. Obama is going to have Fannie Mae and Freddie Mac underwrite the refinancing of mortgages for about 11 million people. The new borrowers cannot have more than one default in the last six months, but beyond that the requirements are not much. The requirement for a 580 credit score is not going to stop too many folks. Beyond that, there are no income requirements, no need to verify income, no appraisal of the houses, indeed, nothing else. If someone owns a house and has been struggling to make the payments but has reached the point where he or she can no longer handle them, Obama's team would give that borrower a new mortgage at a lower rate. Further, for about 3.5 million mortgages that are now held by private owners, Obama would see that they got paid off in full and then it would have the taxpayers take the risk on new mortgages of the same amount but with a much lower interest rate.

Let me say that another way: Obama's plan actually rescues a lot of the owners of private mortgages who are facing large losses due to bad loans. If Bank of America made a million mortgage loans to folks who simply could never repay them, then Obama wants to bring about repayment of those loans that remain. The government will then lend to the same poor credit risks with federal money instead of private funds. In this way, when the borrowers default, the loss will be sustained by you and me rather than Obama's big bank cronies.

It is truly terrible the way Obama has dealt dishonestly with the public with regard to the big banks. First came Dodd-Frank which got sold to the public as a "remedy" for the problems that led to the financial meltdown in 2008. In actual fact, however, Dodd-Frank functions as a safety net for the big banks. It drives the costs of competing in the banking field substantially; as a result, only the biggest banks can continue to operate. Then, after driving away the competition of the big banks, Dodd-Frank enshrines "too big to fail" as a formal and permanent doctrine of US law. In other words, the big banks are now certain that if they take unnecessary risks and lose, the government will always bail them out again. So Dodd-Frank was actually passed as a benefit for those big banks that are cronies and supporters of Obama.

Now comes another plan to "help" the people which is actually a plan to help the big banks. Think of it this way, if the 3.5 million people with underwater private mortgages owe an average of $250,000 each, then the total amount involved is $875 billion. This is more than was spent on Obama's stimulus package. Under Obama's plan ALL of these bad loans will just get paid off to the lenders and the taxpayer will take all risk after that for any of these loans that do not get paid off. IT IS ANOTHER OBAMA BOODDOGGLE FOR THE BIG BANKS!!!!

Even the refinancing of loans already held by Fannie and Freddie are a bad idea. Supposedly, the Obama administration wanted to prevent any further issuance of subprime mortgages; that was the supposed justification for Dodd-Frank. It cannot make sense for the federal government to make these new subprime mortgages.