Sometimes it feels like our leaders pay more attention to how legislation will play in the media than how it will play in real life. If I understand it correctly, the mortgage rescue bill that passed in the House has a couple of provisions that I find a little disturbing.
First, in order to qualify for an FHA refinance out of your old mortgage, your debt-to-income ratio has to exceed 31%. So, are we in effect providing an incentive for those who want a bailout to increase their debt in order to qualify? That seems counter productive. This is supposed to be mortgage rescue, not credit card rescue. I think that rather than looking at the entire DTI they should just consider the front end ratio, that is housing expense divided by income. If the credit card companies are stupid enough to give unqualified people unsecured lines of credit, why should taxpayers bail them out? It’s bad enough that homeowners are blowing off their mortgages but paying their credit card bills.
Second, why take HUD’s ability to implement risk-based pricing away? Those who are riskier borrowers should pay higher insurance premiums so we don’t all get caught holding the bag. Anyone who drives understands the fairness in this. I have a fast car and am unfortunately on a first-name basis with the local traffic court judge–naturally I don’t expect the pay the same for auto insurance as my careful neighbor with the Volvo wagon. But our representatives have apparently decided that HUD has to charge everyone the same fees regardless of their risk profile. In effect all borrowers end up subsidizing the shaky ones, or guidelines will have to be tightened (which we don’t need right now), blocking the less-qualified from home ownership, or the premiums will (as they are now) be insufficient to cover the losses and the taxpayers will get stuck with the bill. All because no one in office wants to be painted as a bad guy who hates poor people.
Finally, tagged onto this is a $30 million tax credit for auto makers. Apparently this provision was a no-go on its own so someone glued it to the housing bill. And then the gutless reps who don’t want to be painted as obstructing rescue efforts allow it to be rammed through.
Gina, you hit the nail on the head with this one! I couldn’t agree more.
Great post, Gina. Makes ya wonder, who comes up with this? Also, the media has given no attention to the tax credit for auto makers.
And then they ask why Fannie & Freddie are in so much trouble. Simple fact is that mixing politics and subsidies with private enterprise is a surefire way to go bankrupt.
If Fannie and Freddie raise their limits will that expose them even more with the risk?
Great post Gina, the people on the Hill really only care about staying on the hill they just try to sugar coat everything. Ling you are right about the mixing, they sure like to get thier hands in jsut about everything that they can even when they have no clue how to run it.
Very nice post! Love the title Image Is Everything, isn’t that the truth.
Great post its all about how it will be viewed by constituents. Politics is never clean but, another round of fiscal stimulus can’t hurt…
The debt to income ratio seems kind of crazy. I wonder if the credit card companies are trying to throw that in. Also it seems if you debt to income ratio is above a certain amount like 55 that you should not qualify for help. It seems that people who totally ignored risk and went overboard should be last in line for help.
Gina, you are so mean to expose all of this! Golly, I thought my elected representatives knew basic math, could balance their checkbooks, and had our best interests at heart. Now, I guess we’ll just have to wade through the hundreds of thousands of foreclosures because nobody will really be able to qualify!
On the surface, these politicians want the average consumer to think they are helping out. Americans really need to learn to read between the lines and all of the fine print to see what new legislation is all about.
Well said, Gina. Wonder how many potential home buyers actually understand the $7,500 “gift” from us generous tax payers?
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I have a fast car and am unfortunately on a first-name basis with the local traffic court judge–naturally I don’t expect the pay the same for auto insurance as my careful neighbor with the Volvo wagon. But our representatives have apparently decided that HUD has to charge everyone the same fees regardless of their risk profile. In effect all borrowers end up subsidizing the shaky ones, or guidelines will have to be tightened (which we don’t need right now), blocking the less-qualified from home ownership, or the premiums will (as they are now) be insufficient to cover the losses and the taxpayers will get stuck with the bill. All because no one in office wants to be painted as a bad guy who hates poor people
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The more I read about this bill that our Congress passed, the madder I get. They are getting all of this money from China and Japan. What is going to happen if those countries decide to call our note? They will own us.
Gina, I can’t agree more that HUD’s ability to implement risk-based pricing away., should not be equal across the board for everyone.. and should implement the same as they do on auto insurance and to reward those that have kept up with their mortgage… Risky borrower show pay a higher premium.
Gina, I can’t agree more that HUD’s ability to implement risk-based pricing away., should not be equal across the board for everyone.. and should implement the same as they do on auto insurance and to reward those that have kept up with their mortgage… Risky borrower show pay a higher premium.