Obama’s Mortgage Plan: A Massive Failure Before It Begins ...Published: August 6, 2013 2:12:23 PM
Secretary Donovan and Obama Administration Double Talk About Mortgages
Obama has introduced a shocking plan for the U.S. mortgage and housing industry that surely will lead the country into financial chaos if ever enacted. In 2008, the U.S. faced a financial disaster due to bad underwriting policies in the origination of mortgage loans. Yet, Obama’s plan seeks to return the U.S. to before the 1960’s when little or sometimes no money was available for mortgages, when all mortgages required at least twenty percent down and qualifying was very difficult, when it took several months even to get a mortgage, when new housing developments (starts) were static and dismal, when commercial banks did not originate single family home mortgages, when there was no such thing as condominiums, and when only savings and loan associations originated mortgages and this was only from their own cash flow. Basically this plan would return the U.S. into the dark ages when personal computers and electronic technology were science fiction, and black and white television was thought to be the cat’s meow.
Let’s recall some history. Freddie Mac (“FMCC”) was incorporated in 1970 to originate “conventional” mortgages (Fannie Mae (“FNMA”) was incorporated earlier to originate only FHA loans). Both of these companies were formed to establish the secondary mortgage market which consists of institutions engaged in originating mortgages and selling them to FMCC or FNMA who would then sell bonds backed by mortgages. As such, a system was created that allowed massive amounts of lower interest rate money to flow into the mortgage industry and allowed the average middle class family to own a home.
Interesting at this time, these companies sold these bonds without any government guarantee. They would give seminars on the new system noting its strong points and always mentioned there was NO government guarantee. Still, the housing and banking markets loved the system. It allow them to make more money wh
Great article! This is exactly what majority of Americans don`t know and truthfully many don`t care until its to freaking late! This admin continues to make a mockery of all things American! Buying a home sure as Sheet is. Yet, this King is in the midst of destroying what we as Americans strive for. This nation is more responsible than our so called Ruler wants you to believe. This King feels Govt needs to take complete control over our lives and our freedoms are being taken away.
It allow them to make more money while giving home ownership and housing developments a tremendous boost. Also interesting at the time was their philosophy of NOT buying sub-prime mortgages then were called variable mortgages. They recognized then the danger of a decline someday in housing prices which could cause a disaster if people failed to pay the mortgages because of a major economic decline.
This was the absolute root cause of the 2008 economic crisis when home prices drastically fell and many people failed to make payments, and these mortgage backed bonds took a major drop in value. This caused all financial institutions that bought these bonds (major banks) to take big financial losses. So, the U.S. government decided to take “conservatorship” of FMCC and FNMA, both PUBLICLY held companies, without the common shareholders approval required by the SEC of all public companies. Then the government infused $188 billion to keep them going. So, this cash infusion was structured very differently then the huge cash infusions given to AGI, Ford, and the banking institutions as “loans” not conservatorship. All was done in the name of “public” safety.
Now AIG, Ford, and the banking industry have repaid the funds loaned to them, and FMCC and FNMA in a short time have paid back about $132 billion of the 188 billion to the U.S. government. Yes, the U.S. economy was strong enough to bounce back. So now FMCC and FNMA are again, as before the crisis, earning huge profits (and should repay the monies with interest by the end of this year or next year. In fact, both companies had the second highest net profit in their history for the 1Q 2013 of this year
Well, things are going so good that now the U.S. government decided to step in and gum up the works as usual. Amazingly, the Obama administration has come up with a “plan” that would destroy this system and replace it with some sort of sledge hammer approach expressed in the double talk of politics. Frankly,
Frankly, I expected better, thinking Obama was an intelligent man. But this plan (as well as those in the U.S. Congress) show a surprising a complete misunderstanding of the mortgage markets and how they function within the banking industry. Donovan, the secretary of HUD, the Housing and Urban Development, even went on national television and looked ridiculous as he related the mysterious, non-functional and dangerous plan in which he (and Obama) seek to double-talk the American people into accepting some sort of new system for their “benefit.” That type of governmental gibber-jabber should always send a red light and siren to the American people.
So let’s review Secretary Donovan’s (the Obama administration) statements:
1.The government claims they can help more people refinance their mortgages. This is a false statement for the only thing that helps is money at lower rates. And who is going to pay for this - the U.S. taxpayers?
2.The government can streamline getting a mortgage. O’ really, like in the past with all the governmental regulations and paperwork. Generally mortgages are now funded within three to four weeks. That’s good! You can’t get documentation together much faster.
3.Too many families locked out of getting a mortgage. This is a ridiculous statement since there are too many mortgages to unqualified buyers and sub-prime mortgages. Families that are locked out don’t qualify, there is plenty of money.
4.We can’t go back to the past and what made the 2008 crisis. What made the crisis is sub-prime mortgages. Don’t kill a great system, restrict the number of these mortgages and have FMCC and FNMA place them “risk” pools of mortgage bonds. This has already been done.
5.We need to have mortgage finance system that protects tax payers and puts private capital first. This is the stupidest statement. What does our present system do? Mortgages are bought and mortgage-backed bonds are sold solely to financial institutions (private capital). Th