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We've
now come full circle. Instead of trying to get people to stay in their homes,
Obama is willing to pay them to leave. Please consider Program Will Pay
Homeowners to Sell at a Loss.
In
an effort to end the foreclosure crisis, the Obama administration has been
trying to keep defaulting owners in their homes. Now it will take a new
approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe
and will give them a little cash to speed them on their way, is one of the
administration’s most aggressive attempts to grapple with a problem
that has defied solutions.
Under the new program, the servicing bank, as with all modifications, will
get $1,000. Another $1,000 can go toward a second loan, if there is one. And
for the first time the government would give money to the distressed
homeowners themselves. They will get $1,500 in “relocation
assistance.”
Short sales are “tailor-made for fraud,” said Mr. Lawler, a
former executive at the mortgage finance company Fannie Mae.
Under the new federal program, a lender will use real estate agents to
determine the value of a home and thus the minimum to accept. This figure
will not be shared with the owner, but if an offer comes in that is equal to
or higher than this amount, the lender must take it.
Big
Shell Game
Diana Olick describes the situation perfectly in Mortgage Principal Writedown Won't Save Housing.
And
so it begins. Big gun lawmakers are making the move toward principal writedowns
as the last resort to save the housing market.
The problem is prices. Home prices have fallen so far in the hardest hit
areas, the areas where the bulk of the troubled loans are, that banks would
have to write down principal 30 to 50 percent to put borrowers back in the
green. Accounting rules require that banks write down the value of those
loans on their books, and experts tell me that if banks really accounted for
all the losses in the home loan market, they'd all be insolvent.
That's why the Obama Administration has created this kind of shell game in
the first place.
I stole that shell game idea from housing consultant Howard Glaser:
"We're spending tens of billions of dollars on a tax credit to get
people to purchase homes, we're spending federal money to keep them in their
homes through the modification program, and now we're going to pay them to
move out of their homes. This is not a sustainable system for the housing
market. It's a shell game. Bernie Madoff could have created this system,"
Glaser told me today.
F.R.A.U.D.
Let's take real estate agents who might not have had any sales for 6 months
or even a year, and agents who have a vested interest (a commission) in
selling a home, and let's put them in charge of figuring out what a home is worth.
Good idea.
Oh...there's no chance real estate agents will sell homes to their friends
for cheap or to total strangers for that matter, just to get a commission.
Indeed, real estate agents have been the paragon of virtue throughout the
crisis so this is the culmination of a perfect idea.
Even appraisers working directly for the bank might be tempted to make
special arrangements with favored real estate agents. A final approval
process at the bank would make fraud harder, but that is contrary the idea
the lender must take an offer if it hits the established minimum bid. A
secondary review would also slow things down.
That aside, even with the chance for fraud, lenders are losing money by doing
nothing, and in many cases by letting people live in homes rent free for 18
months or longer. Perhaps dealing with fraud issues is the lesser of two
evils, assuming of course the banks can afford the loan losses. Then again,
what alternative is there besides pretending loans on the books are worth
full value?
This is what our affordable housing program has become: Giving tax credits to
new home buyers, spending taxpayer money to keep people in their homes,
paying people to move out of their homes, and bankrolling Fannie Mae and
Freddie Mac with tax dollars for unlimited losses.
Mish
GlobalEconomicAnalysis.blogspot.com
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