I read fairly often but rarely feel the need to comment on what is happening. However, every once in a while, I read something that I just can't help but lash out at.
Excerpt from the Washington Post regarding the housing legislation that passed the Senate by a vote of 84 to 12
" Under the proposal, the Federal Housing Administration
would be authorized to insure up to $300 billion in new loans for
families whose lenders agree to write down their debt to no more than
87 percent of their homes' current, reduced value.The program would be temporary and would cost about $1.7 billion,
assuming about a third of the new loans fail and the FHA were forced to
take possession of the properties. The cost would be covered by
diverting a small portion of Fannie Mae and Freddie Mac's profits into
a new fund that in future years would be used to finance affordable
housing."
Full Washington Post article here
There are several things that are utterly wrong with this picture. I'll save my opinion of what a government bailout means for the state of the American economy and the morale of the average American citizen. But I cannot just let the sleeping dog known as "illogical solution" lie. The legislation states that they will use Fannie Mae and Freddie Mac's PROFITS to finance affordable housing.
Frankly, Fannie Mae and Freddie Mac don't have anymore money, much less profits. Their stock prices are plummeting and Fannie Mae has posted an Earnings Per Share of -6.00 dollars. Here is Fannie Mae's stock price over a 5 year period:
They have gone from about $70 to $13 per share in about a year. So my question is, where is the government going to get the money to fund this housing legislation that is supposed to save all these people from foreclosure?
Here is my other concern about this legislation:
"The Senate bill would permanently increase the loan limit from $417,000 to $625,000, but House Speaker Nancy Pelosi (D-Calif.) and others want to set it as high as $730,000."
Why is Congress allowing larger loans for mortgage-backed securities? Why must it be as high as $625,000? In my opinion, people do not need to spend that much money on a house, especially if they are unsure of how to repay the loans. Plus, there's the threat that the loan limit could be even higher. I understand Pelosi's desire to help out her constituents, but why does the rest of the country need to be burdened by the hugely overpriced California housing market? A higher limit will only lead to Fannie Mae and Freddie Mac to accumulate more debt at an even faster rate.
To me, this is not even remotely the solution we have been looking for. (I also apologize for the formatting errors - this is my first blog)
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