If bad loans got us into this mess, can we expect more bad loans to get us out? The answer is YES if you are running the Fannie Mae or Freddie Mac government refinance programs. In a recent press release it was announced that the two government owned agencies will now refinance loans up to 125% of the current home's value!
Did we not learn anything from the current, and continuing), housing bust? All facts from the mortgage industry and government point to the fact that mortgage default rates take a huge spike upwards with high loan to value loans.
I would venture to say that many of the mortgage debtors (in trust deed states) may not realize that by refinancing through this program, they will be going from a non-recourse loan to recourse refinancing, in many cases.
My bet is that actions like this will give a false sense of recovery for awhile, only to have us fall further in the future, much like the stimulus money is currently doing.
In his statement FHFA Director Lockhart said, “The higher LTV refinancing will allow more homeowners to strengthen their finances.” Do you really believe this? If the government really wanted people to stay in their houses, they would allow them to go into foreclosure and help them find alternative housing. Moving them into a 125% LTV recourse loan is setting them up for disaster and setting taxpayers up to take on the resulting new losses.
Perhaps the government is not being 100% honest in their touting this 125% refinancing program as a way to help people stay in their houses. In reality, it may actually be a way to help banks keep from writing down assets while they earn enough money to increase their capital base.
Living in California, I'm a little disappointed in the fact that our state tax and spend government did not come up with a comparable plan before the Feds. The fact that California has no budget, is issuing IOU's and has upwards of a 26 billion deficit is no excuse. Just a few months ago California passed a new law giving new home buyers a credit of 5% of the purchase price up to $10,000. California set aside 100 million for this program. Now that the $100 million is almost exhausted, two new bills are pending in Sacramento to to double or triple the original $100 million.