Barack Obama’s new housing refinance plan has nothing to do with “lowering monthly mortgage payments so responsible borrowers can stay in their homes”. That’s all public relations bunkum. The truth is the banks want to offload their garbage mortgages onto Uncle Sam to avoid hundreds of billions of dollars in losses. That’s what this refi-ruse is really all about.
The administration estimates that 3.5 million people with private label mortgages will be eligible to refinance into loans backed by the Federal Housing Administration (FHA) Many of these are high risk mortgages that will eventually go into foreclosure which is why the banks want to get them off their books. Regrettably, Obama is only too happy to help them achieve that goal. Here’s a little background from the Christian Science Monitor:
“The nation now has about 30 million mortgages backed by government-sponsored enterprises (GSEs), mainly Fannie or Freddie…. About 3 million of those are “under water,” meaning the loan is now bigger than home value. Another 20 million or more have been underwritten entirely by private lenders. Some 35 percent of those, 7 million or more, are under water.” (“Obama plan to lower mortgage payments could help, but how much?”, Christian Science Monitor)
Why are so many more “private label” mortgages underwater than loans that were issued by Fannie or Freddie?
Because the banks were lending money to every Tom, Dick and Harry who could fog a mirror. It was all a big joke. The banks didn’t really give a hoot if the borrowers were creditworthy or not because they were bundling the mortgages together into mortgage backed securities (MBS) and selling them off to investors around the world, so documentation and loan standards didn’t really matter to them. They got their pound of flesh whether the loans blew up or not. Here’s a little refresher from the Washington Post on how we got to where we are today:
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