President Bush: Mortgage Market Speech

Our fearless leader, President George W. gave a speech this morning on reforming the mortgage market. First, his aides need to sit down with him and tell to stick to what they write and not try to add on or ad lib where he sees fit. He alluded that some people do not know what refinancing means and the current problem in the housing market! Come on, the U.S. consumer and credit, not knowing what refinance means....let's not be so naive. Oh and for those in the Industry cheating people, the Dept. Of Justice is coming for you. Please... there are thieves in any industry and most go untouched for enough time to move on to the next scam.

Ok, I digress in my venting. However, his reform calls for FHA to increase loan limits, allow FHA to refinance currently delinquent borrowers, and to pour more money behind Fannie and Freddie. I am glad that he referenced this was a temporary relief and that it will not be indefinite.

Here is the problem I see. While allowing delinquent borrowers to refinance into a lower rate and payment, FHA will have to take on some drastic guidline changes. If someone is currently delinquent on their 7.5% 2 Year ARM what does putting them into a rate of 6.5% on fixed term really benefits them? The payment difference on current loan limits assuming the max for Cook County of $275,200.00 is only a payment difference of $70.12 taking into account Mortgage Insurance.

Granted there will be borrowers in much higher rates that will benefit but if a payment is already extremely high to cause someone to be several months delinquent how much needs to be saved on a monthly basis to ensure their secutiry.

FHA also allows a refinance for cash out up to 95% of the Home's value. For many of us in the industry we have done High LTV cash out debt consolidations. Only to find our borrower's calling 8 months later in the same mess. Even if we as Loan Originator's are doing our fudiciary responsibilites of disclosing all terms, explaining how to take the savings and either invest it, pay down their principal quicker, or any other useful information we give a borrower, we cannot help the US consumer's indulgence in "have it now, pay for it later."

So, I pose the following questions...

Will the increase in loan limits, allowing delinquent borrowers refinance, and other reforms I am sure are to come going to really do much for the masses?

Is this reform only going to stall the inevitable?

With stalling the inevitable, are we now placing the lending burden on the government and not private institutions? (I do not remember the last time the US was not in the red as it is)

Shouldn't the free markets figure themselves out? Isn't that the basics of economies?