[quote=SD Realtor]Confusing the mortgage problem with an insolvency problem is incorrect Brian.
I am somewhat torn about this proposal. I do see merit in putting money in homeowners pockets by lowering the rate at which they are paying which essentially is what this proposal is doing for qualified homeowners who are underwater.
However this by no means is solving the problem. In fact it is more then likely perpetuating it. The solution is actually rolling back safegaurds that were put in place because of the bubble. Mortgage originators now can no longer be held responsible for an incorrect appraisal. In fact, I do not believe they will even be appraising properties that are going to be refinanced under this program. Thus a loan is being made on an asset that we know is much less valuable then the loan.
Doesnt that seem wrong to anybody?
Furthermore the GSEs are going to back the loans. Ultimately that is taxpayer money.
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What else is happening here? Well we are now going tens or hundreds of thousands of refinances, maybe even millions to people.
Guess who makes money on refinances? Those evil banks if I recall… Is that correct? CAR care to chime in?
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Finally, we are once more promoting a society of consumption and strapping people to debt. The debt has not shrunk, the overvalued asset is still highly overvalued, and the loans on the books although they are at a lower rate, in no way do they represent the value of the asset. So essentially instead of trying to encourage the society to live within their means we are doing the opposite.
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The problem is a solvency problem and until liquidation occurs, the problem will persist. In fact, the real solution would be to do the opposite which would be to let the foreclosures run their course, and perhaps not punish people for indeed walking away. If all that time and money we have put into bailouts, affordability programs, shams and backroom deals, and all the other things we don’t even know about, was rather put into a focus of figuring out how to perform an orderly liquidation then THAT is how you build a foundation of a strong real estate market. This would be a monumental task and perhaps it is impossible.
However swallowing the bitter pill involves liquidation.
Again I am not saying this proposal is entirely bad… It has some merit but in reality the underlying asset is overvalued and the banks will make a killing off of the refinances. That doesnt sit well with me.[/quote]
Great post, SDR. Couldn’t agree more with everything you’ve said.
As far as originating the new loans, yes, it’s my understanding that it will be done by the private sector, but they are hoping the originators will charge less for it.
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The new program enhancements address several other key aspects of HARP including: Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
