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Friday, August 31, 2007

President Says Reform FHA & Fannie Mae - Is there a Mortgage Bailout Coming?

Most investors and analysts have been predicting the Fed will lower interest rates next week in an effort to revive the mortgage and housing sectors.  But this morning, some of those hopes faded a little as President Bush announced his plan to deal with the current mortgage crisis.  And now, some investors are worried the Fed may not lower interest rates as most were expecting, or may not lower rates as much.

The President didn't really give many details and he didn't take any questions about his plan.  He did say that his solution includes reforming FHA, Fannie Mae, etc, thus making it easier for borrowers who are in trouble to re-finance their mortgages.  But wait just a minute...isn't that what got us into this mess - easy loans for people who really can't afford them?  And assuming the President can get his plan passed through Congress, I really don't understand how reforming FHA will help subprime lenders and borrowers.  In fact, this 'FHA reform' isn't really in response to the mortgage crisis at all.  This FHA reform is actually something the President started pushing for over a year ago.

The President also mentioned making the mortgage industry more transparent in order to prevent future problems.  I agree that borrowers should be informed and understand the terms of their loan before signing on the dotted line.  But I don't totally buy into the victim mentality.  While there's plenty of sleazy mortgage companies out there taking advantage of the proverbial 'little guy', I think the little guy has to take some responsibility too.  If your loan officer asks you to sign an application that says your income is twice what it really is, and you sign it because he says nobody's going to check and it's the only way you'll be approved for the loan, yes the lender is wrong.  But so is the borrower.  And both the lender and the borrower should suffer the consequences for their bad decisions.  That suffering is what will teach them both NOT to make the same bad decision again.  In the absence of consequences, neither will change their behavior in the future.  While I don't believe there should be a bailout for the greedy mortgage company when this borrower defaults, I don't believe there should be a bailout for the borrower who lied either.  While there are truly some borrowers who didn't understand the terms of their mortgage, they shouldn't have signed something they didn't understand.  It may be a tough lesson, but it's one that needs to be learned.

Yes, it's nice to have someone else to blame and it's always easy to blame big business.  But it's ultimately my responsibility to decide how much house I can afford.  And if I get in over my head, I have nobody to blame but myself.  By the way, 98.7% of American homes are NOT in foreclosure right now.  So why should 98.7% of us have to pay to bail out the 1.3% who made bad decisions?

As an American who makes a living in the real estate industry, I definitely want to support the President in any effort he makes to improve the housing market.  But helping those in trouble to re-finance loans they couldn't afford to begin with just seems silly to me.  I personally think it's more likely to prolong the agony than to resolve any problems.

READ UPDATE to "President Says Reform FHA & Fannie Mae - Is there a Mortgage Bailout Coming?"

Visit Shannon Hubbard's Home Page     Written By: Shannon Hubbard
Realtor®-Investor

Great American Realty, Inc.

Cell: (480) 695-6672
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Posted by Shannon Hubbard, AZ Realtor & Computer Guru on August 31, 2007 | Permalink

Comments

The stock market is up in a big way today, so perhaps investors like the President's plan to revive the mortgage and real estate markets by reforming FHA & Fannie Mae, etc. Or maybe they're happy that Bernanke said the Federal Reserve will 'act as needed' to deal with the subprime mortgage problem and current credit crunch. Hopefully that means the Fed will lower interest rates next week afterall! It will take a little before the lower interest rates affect mortgage interest rates, but it will give confidence to both the real estate market and the mortgage industry.

Posted by: Shannon Hubbard | Aug 31, 2007 12:24:57 PM

I agree with Shannon, I also hope that the Fed will cut interest rates!

Posted by: KY Real Estate | Sep 1, 2007 12:37:50 PM

I definitely could see a bailout coming sometime in the future, maybe not immediate but within the next several years.

Posted by: Louisville Real Estate | Sep 9, 2007 6:57:37 PM

I heard on NPR this morning that the current prediction is that the Fed may still lower interest rates by 1/4 or as much as 1/2 in response to the rise in unemployment.

Posted by: Yvonne http://mocoreal.blogspot.com/Reil | Sep 11, 2007 9:49:48 AM

Finally! Someone comes out with it. I've been thinking the exact same thing for quite a while and actually wrote a blog post about it at http://truthfullending.com/fha-secure/.

The thing about it is, no matter how shady the mortgage broker/lender may have been, even if they straight up lied to the borrower, the borrower still signed his name on those papers having no idea what they said. You make a mistake, you pay for it.

Posted by: Money Merge Account | Sep 15, 2007 10:13:49 PM

The Federal Reserve cut interest rates by a half a point today. Wall street cheered the move to the tune of a 300+ point Dow gain.

Posted by: Shannon Hubbard | Sep 18, 2007 1:38:03 PM

The Fed is cutting interest rates, but so far it hasn't done any good. Too many people have already felt the effect of a declining economy.

Posted by: Karen | Nov 16, 2007 3:00:57 PM

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