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Less than a month ago George W. Bush, outlining his position against a government-sponsored bail out of the housing and mortgage markets, proclaimed “It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford.” It was a strong stance that earned plaudits from those who chose not to gamble in the housing market, and economists who were concerned that government intervention would only prolong the well-detailed over-valuation of American real estate. But was it a ruse? It appears so. For a bail out by any other name is surely still a bail out. And what we have seen over the last 3 weeks since Mr. Bush’s aphorism against the greed and irresponsibility that fueled this speculative bubble can only be surmised as a bail out indeed.
There has been little fanfare, and zero talk of a “comprehensive package” which is often the hallmark of a government-scripted rescue; but Congress cannot be accused of being insouciant when it comes to housing, there in bits and pieces can a bail out scheme be seen forming, as clearly as a figure in an artfully-crafted mosaic.
A quick scan of the items that have arisen since Mr. Bush’s proclamation shows this unheralded patchwork assistance program being swiftly and quietly ushered in to law.
The launch of FHASecure - a program of seemingly little consequence that, even by the government’s estimates, may only help a quarter-million of those 14 some-odd million home owners who hold subprime adjustable rate mortgages. FHASecure allows homeowners who have missed a mortgage payment (or many, many more) to refinance their home in to an FHA-insured home loan at a low, fixed rate with no teaser rates or complicated amortization and rate change features.
While 250,000 may benefit from this program, it is hamstrung by the fact that the largest contingent of homeowners staring down the barrel of foreclosure live in states, such as California, Nevada and Florida, where FHA loan limits (which are currently 80% of conforming loan limits - the maximum amount being $362,760) are unable to help a large percentage of those at risk. With FHASecure in place the government has drastically loosened traditional FHA underwriting guidelines (guidelines which dodged the euphoric distortion of the last half-decade) for people who made poor financing decisions in recent years.
The increase of federal loan limits. FHASecure is limited because loan sizes in high foreclosure states are many times the current allowable maximum loan size for FHA-insured loans. Further, loans that can be bought by Fannie Mae and Freddie Mac (the government sponsored entities, GSEs) are also capped at $417,000 (for most states). In a move that is clearly designed to help improve the effectiveness and reach of FHASecure (and yet to be announced related programs) politicians at every level are calling for loan limit increases. No less than the “Terminator” himself sent letter to Congressional leaders articulating his views on the “irrelevance” of government loan limits to the California housing.
The Govenator is not the only one pushing; Senator Schumer is not only pushing to allow Fannie and Freddie to buy more mortgages, but to also increase their loan limit caps (and FHA as well). His legislation hit the floor a scant 11 days after President Bush’s missive.
The forgiveness of debt relief incurred in short sale home transactions. Currently, homeowners who sell their homes at a loss that cannot be covered by cash out of their assets is covered by the lender in the process of a short sale. This debt forgiveness is no favor from the lender however; as homeowners receive a 1099 reporting the forgiven amount lost in the short sale to report as income on their year-end taxes. Talk about a double-whammy; not only do homeowners lose their house (if it was ever theirs to begin with via 100% interest only financing) but also are rewarded for trying to extract themselves from potential foreclosure with a nice, healthy hit to their yearly income. This may be about to change as the House Ways and Means Committee just passed H.R. 3648 Mortgage Forgiveness Debt Relief Act of 2007 - unanimously. This act keeps the debt forgiven for mortgage-related losses from appearing as income at tax time. A welcome development for those people currently decorating their front yard with ‘For Sale’ signs in a desperate attempt to extricate themselves from a less-than-desirable situation.
More on the way. We have legislation in the works to allow bankruptcy courts to rework mortgage debt for personal bankruptcy cases, $1 billion in assistance pledged by presidential-hopeful Hillary Clinton, dollars allocated for debt and financing counseling, and many more polemical and effervescent ideas - some will surely stick and fall under the unspoken rubric of a federal bail out of home owners.
Mr. Bush, your posturing was a nice, if thinly veiled try. It seems to be a running theme of this administration to use a strong aphorism to gloss over the actual facts of the matter. Your strong words offered a glimmer of hope to the responsible and reasonable amongst you and your colleagues constituencies, but the actions of Congress clearly show that politicians are racing ahead to bail out homeowners.
The goal is clear: come to the aid of gamblers who left all their money on the come line and crapped out. Whether you ever utter the words bail out or not, the government is in full rescue mode; under the sleepy watch of American press and the public eye. When the new legislation is assembled piece by quiet piece, a large safety-net will have been crafted by. Crafted in total disregard of the near 70% of voters who favor no bail out, the government is piecing together another ill-begotten subsidy.
We should not be surprised though. The American government has always come to the rescue of those who fall out of the market’s favor. Farmers of cotton receive subsidies north of 80% for each bale of cotton sold; no less than the automotive, savings & loan and airline industries have been completely bailed out in the last three decades; dictators and suppressors of freedom receive billions in US government hand outs to help further American interests. If the proletarian homeowner can’t get in line for a hand out with those regulars, what good is their government to them? The US government continues to play with state-sponsored socialism in situations where it benefits them the most; and this year its all about looking good for elections. Joe America is going to be looking at the world (and ballot) through the lens of the bay-window of their McMansion ; and whomever helped keep him there the longest is going to get his vote. It’s time that we call horse a horse; the government has stepped in and the dole-line is beginning to wind down the block. Whether 70% disagree or not,the gears of this bail out are grinding quickly and roughly. A common theme in America gets a new-century refrain: those that gamble win. Why not take one more roll of the die when you’ve got the greatest enabler of all time in your back pocket - Uncle Sam?
What do you think?
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