Utter Insanity
ChrisB on Dec 17 2008 | Filed under: Chris' Page, housing, regulation
Those are the only words I can think to describe this proposal.
The Hubbard-Mayer plan calls for the government to revive the moribund housing market by providing just about everybody with access to a 30-year fixed-rate mortgage with a 4.5 percent interest rate. That’s almost a full percentage point lower than the average national rate of 5.47 percent currently.
Buyers could borrow as much as 95 percent of the value of the home they purchase. The plan might extend to those with existing mortgages, allowing them to refinance and get the same terms. When either type of deal is complete, the lender will place the loan with Fannie Mae or Freddie Mac.
Anyone refinancing with positive equity in their home would be relatively easy to accommodate. For those with negative equity — meaning the dollar amount of their mortgage exceeds the value of their house — Hubbard and Mayer recommend that homeowners and lenders split the loss evenly and start over with a clean mortgage reset to reflect the property’s current market value.
The sheer cost, $3trillion is mind bogglingly scary (and when was the last time anything government run ever came close to it’s initial cost estimate?). And let me just say, I’m simply amazed at the poorly thought out reporting from Mr. Hassett here. No thoughts about what happens when huge numbers of people default on these govt mortgages? How ripe the plan is for fraud and gaming? To say nothing of the unintended consequences, waste, and opportunity for patronage ripe in everything Congress does. Is this shallow thinking what passes for reporting at Bloomberg? Government doesn’t just get to throw out economic reality. There’s a reason why private banks don’t offer this.
It seems like every other week I see a new plan come out of congress that makes me think, “This is the worst idea I’ve ever heard” and I think each time it’s true but each time I’m shown how wrong I was.
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