The Washington Post  reported back in August that President Obama is trying to hatch a new plan for the federal government to keep a major role in the home mortgage business.

On mortgage rates, Obama wants proposal for how government can keep big role

President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter.

More…..

COMMENTARY:

As Albert Einstein observed, the definition of insanity is doing the same thing over and over again and expecting a different outcome.

Here we go again…..

THE UPSIDE:

OK….the basic idea of providing low interest long term loans so people can own homes is a wonderful idea.

A big portion of our economy has been driven by home construction and home ownership going back to just after the end of WW II.

But like a lot of things federal, what started out as a good idea ended up  turning to dog vomit when people starting gaming the system.

One of the reason for the housing bubble that nearly crashed our economy was the idea that everyone ought to be able to own a home even if they really couldn’t afford it.

The whole “sub prime” mortgage business and federal policy was driven by the goal of expanding home ownership beyond where it could not support itself.

The first thing the feds are going to have to do is adopt a realistic level of what can be sustained in home ownership.

Maybe 30% of the population is not going to be able to own their own home…especially in light of the chronic unemployment. Don’t try to push home ownership where it is not feasible.

The second problem was the creation of “derivatives” whereby people could bundle up flakey mortgages and sell them off to unwitting investors.

This greatly expanded the pool of money to loan to home buyers and pushed a lot of people into homes because mortgage brokers and bankers wanted more and more commissions.

There may need to be a secondary market for home loans….which is one option for a fed role…but there have to be really tight rules about loan origination, qualification and appraisals. That whole system collapsed in the rush to write more mortgages and states don’t do a particularly good job regulating mortgage bankers and appraisers.

HUD FHA have all these standards for the actual home condition…and there is an opportunity for some interesting stuff with regards to new homes….rethinking whether or not a federally insured home loan for a house requires the house to have a garage versus maybe solar energy. I remember fussing with FHA over a requirement for landscaping trees in Tucson….trying to get them to quit demanding mulberry trees and accepting xeriscape instead.

A really important thing for the feds to do is not put the full faith and credit of US taxpayers behind home loans. That was a plank into the treasury the last time around.

One problem the feds will face is a lot of people have had their credit wrecked in the recession.

 One idea is maybe a lease-purchase option where someone could lease a home, and if they make their payments on time for 3 years and repair their credit rating, then they would be eligible to exercise the option and purchase the home under the federal program. A program like this existed in California but got wiped out when sub prime loans started being made to people with no docs and no downpayment. No wonder everything went into the toilet.

Another element that ought to be considered is a combination home purchase loan and upgrade financing for existing housing…to retrofit existing housing with more energy efficiency like insulation and new windows…and maybe add a solar component.

It is going to take a while for the home building industry to recover…and it is essential to our economy that this sector does recover.

THE DOWNSIDE:

Next time around Washington has got to not force social policy into the mix, and Washington has got to keep the Wall Street pirates from ripping everyone off.

I think the first step of a new federal role in the home mortgage business is for the Obama Administration to single out the top 30 bad guys in all the mortgage fraud and charge them with massive federal crimes sufficient to lock their sorry butts up for life.

Lets perp walk some bankers, the Countrywide Bandits, some Fannie Mae and Freddie Mac co-conspirators, a few bond rating agency bosses, and other rascals.

The message has got to be clear that not only will us taxpayers not bail you asses out if you create a fraudulkent bubble, we will demand and get your asses thrown in jail.

Every banking and mortgage office should come complete not with pictures of hundred dollar bills or the Federal Reserve, but a photo of a maximum security federal prison.

And as part of a new mortgage system, mortgage fraud ought to be a capital offense.

I’ll bet whatever Obama comes up with will end up being more of the same old opportunity to scam the system and stick it to us taxpayers.

See also Mark Evans commentary Hey Obama, it’s about homes, stupid

This entry was posted on Tuesday, September 6th, 2011 at 4:56 pm and is filed under economy, politics. Tags for this post: home motrgages. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.