About Government Refinance and Home Purchase Programs

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Dick Armey wrote a pretty good opinion piece over at the WSJ Online explaining why some people are opposed to the foreclosure prevention legislation. Here is an excerpt:

Hundreds of thousands of payment-option ARMs are scheduled to recast next spring, which everyone expects to cause a wave of delinquencies. The Dodd-Frank plan would allow Countrywide and others to cherry-pick their worst loans and roll them over to the FHA. The bill has been advanced in the name of homeowners, but it’s all too clear who is being rescued.

The FHA cannot handle a Dodd-Frank wave of $300 billion “in-distress” loans. The loan volume alone will nearly double the size of the FHA. Yet last week the agency, floundering under its existing portfolio, announced $4.6 billion in new losses. These losses destroy 22% of the FHA’s entire capital reserves and raise doubts about the agency’s solvency.

On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA “is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans.” Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their “highest-risk loans” to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.

We think the problem with these “bailout” claims is that borrowers will still need qualify for the new FHA loans, including the the debt to income requirements. That means that no one should get a new loan if they can’t easily afford the new payments. We’ll see if these complaints will be enough to veto the bill because it looks likely that it will make it past the Senate.

Comments (0) Posted by G.R.A. Admin on Wednesday, June 18th, 2008

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