The latest heap of Keynesian clown bailout madness comes from economist Mark Zandi on how to jump-start HARP (Obama's Home Affordable Refinance Program).
Please consider Experts back expanding Obama mortgage refi effort
At issue is the White House’s Home Affordable Refinance Program, or HARP, which has seeks to provide refinancing options to millions of underwater borrowers who have no equity in their homes as long as their mortgage is backed by Fannie Mae and Freddie Mac, the government-controlled housing giants.Look at the self-serving circular thinking of David Stevens, president of the Mortgage Bankers Association who acknowledged that including borrowers who are even more underwater "would enable more qualified borrowers to refinance". Of course it would. Loosen standards and more qualify for loans, by definition.
“Jump-starting HARP requires that Fannie and Freddie not charge add-on rates, even for refinancing borrowers who have lost a lot of equity in their homes or have relatively low credit scores,” said Mark Zandi, the chief economist of Moody’s Analytics.
As it stands now, the HARP program only allows borrowers to refinance at current low interest rates into a mortgage that is at most 25% more than their home’s current value.
David Stevens, president of the Mortgage Bankers Association, acknowledged that allowing borrowers who are even more underwater, that is they owe even more than that cap, to participate would enable more qualified borrowers to refinance.
Zandi made additional suggestions, including proposing that Fannie and Freddie could forgo borrower income verification and detailed home appraisals to keep costs down.
As of June, roughly 840,000 borrowers have refinanced their mortgages through HARP. However, RealtyTrac reports that about 16 million of the 40 million U.S. mortgages are underwater.
According to CoreLogic, the number of mortgages that are 25% or more underwater is 4.6 million and the number that is 50% or more is 2.3 million
You can temporarily jump-start nearly anything if you throw enough money at it, and that is exactly what Keynesian clown fools want to do. Unfortunately, no amount of taxpayer money is too great for any cause any fool believes in.
Common sense dictates (and history proves), losses accelerate as you loosen standards. Forgo income verification and ignore credit scores as Zandi proposes and losses would soar.
It is ludicrous to propose loan modifications to those with no job or no income, and those significantly upside down on their mortgage. The former cannot afford any payment and history proves the latter will walk away anyway.
No income and no verification liar loans are among the reasons we are in this mess in the first place. Thus, Zandi clearly has a short memory, if any memory at all, coupled with no common sense whatsoever.
The best way to "jump-start" housing is to let the market find a bottom. Once prices get sufficiently low, investors and buyers will step in. Meanwhile, any steps that artificially prop up prices and postpone foreclosures at taxpayer expense will delay the bottom in housing, delay household formation, and delay a jobs recovery as well.
Mike "Mish" Shedlock
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