Wednesday, July 30, 2008

What's Missing from the Housing Bill

Reading the fine print of the new housing bill awaiting the President’s signature is a little like reading the boilerplate on the back of a Castaways Vacation Club membership agreement: At the end of the day, it ain’t all that and a bag of chips.

In fact, the chips may be stale, if there are even any left in the bag.

The housing bill was passed to essentially keep the two biggest lenders for residential mortgages, Freddie Mac and Fannie Mae, from failing after ingesting portfolios that included loans that should have never been made, and are now failing.

The bill is essentially giving these entities something they’d never give you or me: an unlimited line of credit, just in case, no strings attached.
Lord help us if Freddie decides to take Fannie to the Mall.

There’s some Dr. Feel-good written into the bill, too, but it’s a false feeling when you drill down into the details.
The Devil, you say?

Take that $7,500 tax credit for first time homebuyers.
What a deal!
A 10% credit, up to $7,500, on homes purchased between April of this year and the end of June 2009, hoping to spur more young, flat-bellies to buy their first house.
Except, it’s really not a credit, you don’t actually get the “credit” until after you’ve closed on the mortgage, and uh-oh—you’ve got to pay it back within 15-years.
Say what?

Another little nugget that bears closer scrutiny is the FHA Modernization component, intended to drag the Federal Housing Administration kicking and screaming into the 20th Century. FHA loans have always been around, but frankly, were more trouble than they were worth to deal with. FHA loan packets were euphemistically referred to as Carpal Tunnel in a box, and a boon to hand surgeons across the land.

Modernization means FHA will be a little easier to deal with, right?
Wrong, disclaimer-breath.

In the interest of making the loans more palatable to snake-bitten investors, the seller-funded downpayment assistance has been eliminated. An unintended consequence of this may be that FHA loans are still too much trouble for most buyers to mess with.

Congress is trying to show the public it has the cojones to address the crisis of confidence that has sucked the wind out of the sails (and sales) in the financial sector. As is typical with anything coming from Capitol Hill, where there’s smoke, there are mirrors.

What our esteemed representatives and senators have failed to do—and would instantly restore confidence—would be to take the guys at the lending companies who created the mess and flog them publicly. I want names named, and heads rolled.

What Washington has missed is what the public needs most: accountability. Then the rest will take care of itself, and there’s no need for a housing bill.

3 comments:

Anonymous said...

You said at the end there that "the rest will take care of itself"


Please elaborate....

Paul said...

Instead of a bail-out, I would much rather we do a buy-out, so that I can own at least a small fraction of what I am paying for.

Brent Clanton said...

Paul--

Thanks for writing.
If the crisis of confidence did not exist, there would be no need for Congress to provide an unlimited line of credit to shore up the financials.

The only way that crisis of confidence could have been averted was by those who made the messes 'fessing up, and then cleaning up after themselves.

With accountability in play, the crisis of confidence was really just a wrinkle in the public composure, with no market crashes fueled by emotion.