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Monday, October 24, 2011

White House Now Has Underwater Mortgage

The current administration has done many little, ineffective things to address the housing crisis - see Washington Post article.  It has done more to create headwinds.

Even as the White House unveils a "New" plan to refinance underwater borrowers (which is just a revised version of HARP), its own administration is creating barriers to housing and mortgage recovery.  An article in the Financial Times shows how these "pro-cyclical" policies do more to make things worse than they do to improve them.


Effort Postive Intention Actual Negative Effect
Home Affordable Refinance (HARP) Help Underwater Borrowers refinance Requires lenders to take responsibility for previous errors in the old mortgage they are refinancing
FHFA Reform Rescue FNMA/FHLMC Stimulate more lending Initiating lawsuits against lenders, Forcing lenders to buy back loans originated before the crisis
Increase FHA Lending Stimulate home purchase Reduced maximum loan amounts, increased audits, fines and penalties on lenders using the program
Improve Secondary Market Qualified Residential Mortgage will reduce lender liability and amount of risk retained No one knows what a QRM is - no private secondary market exists
Dodd-Frank Rid Market of Predatory Lending Rid Market of 600,000 loan originators, created uncertainty in every segment of market
RESPA Reform Transparency in lending costs $800,000,000 in additional fees for homebuyers and borrowers 

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