Myth Vs. Fact Helping Homeowners Another Perspective
The looming mortgage crisis has affected almost everyone in all facets of life. When the homes stop selling the builders stop building the carpenters stop nailing the painters stop painting paint stores stop selling and Home Depot stock hits record lows. Vertical damage is universal in almost all aspects of retail services and durable goods. Lets face it America is a nation that is fueled by land development and salesmanship. One look at all of the runways across the world and you can see that we have the greatest airplane sales people in the world. Unfortunately ingenuity invention and production have taken a back seat to Americans selling products owned or built by other countries. For Goodness sake GM is second in sales to Toyota now whod a thunk it?
The reason for this article is not to bemoan todays economic footprint but to help people understand the most common myths that you hear about the housing and mortgage debacle. What you hear from our completely unbiased and nonpartisan media auspiciously omits some of the important facts that might help the average American better understand exactly what we are up against.
Living in Atlanta right around the corner from CNN I have originated my fair share of mortgages for reporters and correspondents who will remain nameless. I can honestly attest that news reporters anchors and correspondents have the exact same blank stare and vacant head nod as John Q. Public does when loan officers dive into the details.However now that we have a mortgage crisis they have mysteriously morphed into expert authors as they recite Democratic talking points. If questioned most reporters that write columns about the mortgage industry have no clue as to the real life ramifications of the political solutions they publicize and promote.
As evidence I have taken excerpts from an article by Andrew Jakabovics named Myth vs. Fact: Helping Homeowners; and corrected some of the Democratic talking points he has recited.Mr. Jakabovics writes for americanprogress.org an organization that resembles the aforementioned nonpartisan press. My initial intention was to post this article as a rebuttal to his article on his companys website. However after taking a glance at the website it would appear that any article that fails to blame President Bush for personally orchestrating the entire debacle will fall on deaf ears.
The bill referred to in Mr. Jakabovicss article is the Federal Housing Finance Regulatory Reform Act of 2008; a bill that will raise taxes on mortgages to the tune of 500 million per year. The bill is a part of a larger piece of legislation that will eventually transfer 300 billion dollars of at risk; mortgages that have been handpicked from our nations lenders portfolios. These loans will carry a higher default rate that will cost the Federal Housing Administration dearly that will be made up by additional funding from Uncle Sam. Guess where Uncle Sam gets his money.
The Mr. Jakabovics writes:
1 Myth: The bill offers a bailout to speculators.
Mr. Jakabovics: All legislation under consideration requires owners to live in the homes they want refinanced.;
Real Answer: Agreed however I do not know how much of a myth; this is. Lets move on.
2Myth: The bill offers a bailout to lenders.
Mr. Jakabovicss Fact: To take advantage of an FHA loan guarantee lenders and investors must take a haircut; and pay closing costs plus an insurance premium up front.;
Real Answer: The bill is linked to legislation that takes the worst loans from our nations lenders portfolio’s and transfers them to the Federal Housing Administration which is Government funded. Am I missing something here?
Furthermore an insurance premium PMI MIP has always been on loans over 80 loan to value on ALL agency loans funded by Fannie Mae Freddie Mac and FHA. The insurance premium will not represent a change from the norm as the writer infers. I assume that the haircut; refers to the fact that all loans will be trimmed to the actual appraised value. This will still present FHA with an an at risk; loan at 100 LTV.
3 Myth: The bill offers a bailout to homeowners.
Mr. Jakabovicss Fact: Under the Houses Home ownership Retention Mortgage program and the Senates Hope for Homeowners program each part of the legislation now before Congress individual homeowners would have to pay an ongoing insurance premium to cover the costs of the FHA credit enhancement.;
Real Answer: Ditto
4 Myth: There is no need for Congress to act; the private sectors Hope Now Alliance has been very successful in making necessary workouts.
Mr. Jakabovicss Fact: Few borrowers have been offered substantive longterm modifications to their loans. Moreover a loanbyloan approach to the housing crisis simply cant address the scale of the need.
Real Answer: I agree that Hope Now Alliance is inept. However it is the best response the Executive branch could muster with the Legislative branch bickering and fighting about which side of the aisle can claim credit for solving; the mortgage crisis. A loan by loan solution is exactly what is needed; sweeping legislation that over regulates the banking industry will stifle the flow of money. History has proven time and time again the when congress tell the banks who and how to loan their money they simply stop loaning it.
The truth is both sides deserve the blame here. In an election year neither Republicans nor Democrats are going offer much in the way of concessions that until after the election. The only difference is that the Democrats have ABC CBS NBC and every production being produced from Hollywood cheerleading their point of view. Admittedly the Republicans have Fox and Talk radio until the Dems pass the Fairness Doctrine.;
5 Myth: The housing crisis only affects irresponsible borrowers so taxpayers who struggle to meet their obligations shouldn’t pay for their mistakes.
Mr. Jakabovicss Fact: The housing crisis affects all homeowners and even renters.
Real Answer: Agreed blaming homeowners for getting caught up in the mortgage fiasco is analogous to blaming kids in the 60s for smoking pot. By in large most people caught up in that atmosphere have learned from the experience and moved on.
In closing none of the answers you have read here should be considered a “fact”. The only fact is that we are in a serious financial crisis that is extremely fluid. What America needs is our top financial minds this excludes a lot of politicians on either side putting their heads together to come up with a nonpartisan answer. The answer in not going to be solved by just letting the market “right itself” nor will it be solved by boot strapping federal agencies and private banks with a mandate that bails out everyone in a bad mortgage. The answer is in between those two answers.
Meanwhile Democrats and Republicans are dragging their feet even more than usual because we are in an election year. The answer to this crisis has been lost with meaningless amendments and stalls that positions each side for concessions on larger issues. Neither side is willing to give up any ground with an election looming for fear that it may possibly give the other side bragging rights in November ironically while their constituents suffer.
About the writer: Aubrey Clark is a mortgage professional of 15 years and an editor for Direct Banc a low interest rate credit card directory and Lend Fast a Nationwide Home Mortgage Loan Company. He lives in Atlanta Georgia with his wife and four children.
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