Grouch Marx once said that "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." Just to prove his point, along comes Congressman Garrett of New Jersey. He believes he can run the FHA and has introduced HR 3706. This bill raises the required FHA down payment to 5% on a FHA Long Island Mortgage or a mortgage anywhere in the country. It also forbids the borrower from financing closing costs. Predictably Ben Bernacke, the Fed chairman has endorsed this bill.
Somehow this Congressman has gotten it into his head that increasing the amount the borrower has to put down by 1.5% will make him less likely to go into foreclosure. All it will do is disqualify some people from being able to obtain a Long Island mortgage or a mortgage anywhere in the country. Less buyers means that housing prices will continue to struggle. Yes, that is what we need, further depressing house prices. Lower home prices means more short sales and increasing the likelihood of more foreclosures.
To drive the nail further in the coffin, not allowing the borrower finance the closing costs will also discourage home buyers. Currently they way borrowers finance closing costs is through yield spread premium (YSP). This is is a back door way to get rid of the "evil" YSP. All this will do is make housing even less affordable. When a buyer cannot qualify for a Long Island mortgage or a mortgage anywhere in the country, you can thank Rep. Garrett for his great diagnosis and wonderful remedy.
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