In another move displaying the utter idiocy of the federal government, Fannie Mae and Freddie Mac are now again authorized to offer 125% LTV refi loans.
Can somebody out there tell me why this makes sense? Short answer: It doesn’t make sense, and this is short-sightedness nearly at it’s finest. (The high-water mark for short-sightedness goes to the Obama stimulus program, which is clearly not working at all.)
It seems it should be obvious that lending significantly more than a property is worth would be a bad idea, particularly since our current financial crisis is due in large part to the overheating of the real estate market due to unwise lending guidelines, but apparently common sense isn’t so common after all.
So now we have 125% LTV refi loans from Fannie and Freddie – both of whom were bailed out to the tune of billions of dollars. Does anybody else get this? Apparently not. I saw this comment about this new policy that was made by a real estate agent: “why does there have to be a limit at all. Are folks who are upside down more than 25%, which is millions, somehow less in need or deserving of help????”
This statement was clearly made by someone who is unwise financially. Financial “need” has nothing to do with good lending guidelines. Those who most desperately feel they “need” to borrow money are frequently the ones least qualified to do so. And the notion that anyone “deserves help” from the federal government – which is funded by you and me – is not based in law. The only way one can “deserve” a loan is to both want it and to be qualified to receive it…not to mention finding a lender willing to grant the loan. “Need” isn’t (or shouldn’t) be a factor in underwriting, and real estate loans are not entitlements.
(But Barrack Obama’s administration disagrees with this. It’s clear that the guy has never been involved in business or private industry of any type.)
Lest you think I’m being cold and heartless, remember this: Our current financial crisis is rooted in poor lending guidelines made by lenders of all types as dictated by the federal government. Without those errors in judgment, we likely wouldn’t be facing our current economic crisis. Preventing more of those types of errors in judgments must be the foundation of ending the current economic stress our country faces.
So here we are again, wishing a faux congratulations to Treasury Secretary Timothy Geithner, President Barrack Obama’s hand-picked custodian of the economy. Or, as Ronald Reagan once said… “There you go again”…
Your thoughts are welcomed, whether in agreement or opposition. Please use our comments area below. Thank you for reading RealEstate.BryanEllis.com – the Alternative Media for Serious Real Estate Investors.
I saw an article about this 125% loan this week and I thought it had to be a misprint. This is the type of thing that has caused the mortgage meltdown.
But I guess all we have to do is to follow the money. Its another case of Obama and his buddies doing whatever they can to help Wall Street and keep those idiots in their overpaid jobs.
And for all of you who think this is a great idea, this is the same type of thing you will get with a government provided healthcare program. Absolutely ridiculous ideas that cost all of us way too much money and benefit the friends of Obama.
Hi Bryan
Not only are they getting ready to do the 125% refi but Fannie Mae beginning is changing things on short sales for foreclosures and short sale sales. They are going to require the B side of the deal (B = Buyer from seller and then B = seller to end buyer) hold the property for 180 days and then can’t sell it for more than 20% more than you bought it for.
I just got this word from my title company gal a few hours ago in her office. Now what are we going to do? Subject to’s. .. and REO’s only?
Diana
I’m of the old school. When I was a child it was customary that your house payment PITI was no more than 25% of what you brougnt home. This country would be a lot better off if everyone still felt that way. Before I became an investor and had a J.O.B., I didn’t make much and would need to put down about 65% to make the payments within my budget. Why would anyone want to be so stressed to make unrealistic house payments?
I think it is hillarious how much “conservatives” sound like whinny liberals these days its comedy.
Blame obama this.
Blame obama that.
its like an SNL skit reading this stuff.
I guess this passes for personal responsibility these days.
Wow. That was a very intellectually substantive comment. I’m not sure how we conservatives can ever recover from your rapier wit. Please, oh please, never publicly shame us like this again. I just don’t know if we could ever recover. — Bryan Ellis
Once again dear readers, in Bryan’s continuous effort to trash Obama, he has failed to give you the whole story. Allow me to enlighten you.
Lullaby, lullaby, go to sleep little Anthony. Let’s see if your attempt to use my style works for you. (Bad news. Read on.) — Bryan Ellis
The only reason for allowing Fannie and Freddie to finance 125% LTV loans, is so that people can stay in their house. That’s it. Please excuse the President for trying to help the American people. Lucky for us, that’s his job.
Wrong. His job is to protect and defend the Constitution. Besides, your premise is intellectually infantile. How, pray tell, does it “help” an American to overleverage them financially and essentially GUARANTEE that the future exit strategy for their home is foreclosure? Is delaying a foreclosure better than getting it done and moving on? I’ll bet you think it is, don’t you, Anthony? — Bryan Ellis
It’s not like these borrowers are doing cash-out refinances, and putting the overage in their pockets. They’re doing rate/term finances in order to lower their interest rate, which in turn will lower their monthly payment (allowing them to stay in their home). The reason for allowing a high LTV, is that many borrower’s owe more on their homes than its worth. That’s due to no fault of their own. It has nothing to do with how much money they put down, or how much their house cost in the first place. It’s a result of the depressed housing economy, which Obama had nothing to do with.
Touchy, touchy! Let’s see: If I choose a home that later depreciates, whose fault is that? Clearly, it’s my own fault. Granted, I didn’t do it on purpose. And granted, the depreciation may have been a function of something clearly beyond my control. Yet the fact remains, nobody forced me to make that decision. The responsibility is mine. Therefore the upside and the downside are mine. You don’t get that, do you Anthony? Sad. — Bryan Ellis
The standard maximum LTV for a refi is 80%. If you owe much more than your home is worth, then you’d never be able to refi. Lucky for these borrowers, Obama understands this. A 125% LTV may sound crazy, but it’ll help keep many borrowers in their homes until the economy turns around.
Ahh yes. That seems exactly appropriate for this administration. Their rationale appears to be: “Let’s implement programs that sound good to the uninformed but have never worked in the history of the WORLD – and let’s use as our justification the notion that these programs will work THIS TIME (for the FIRST time) and thus we can ignore all of the rules of economics that have NEVER failed.” Way to go, Anthony – that seems very much in line with the type of reason to which you are accustomed. — Bryan Ellis
And to Tom, who stated that Obama is doing whatever he can to keep the “Wall Street idiots in their jobs”. What planet do you live on? Obama has not made any friends on Wall Street since he began office. He’s done nothing but try to regulate them, and continually pisses them off to no end. You must have him confused with the previous President, who turned a blind eye to Wall Street, removed all regulations on them, and allowed them to screw the American people for 8 years.
I know you guys are going to trash Obama at every turn. That’s your prerogative. But let’s at least be honest with each other, and keep to the facts.
I agree – let’s stick with the facts. And rest assured that your reliance on that which is “plausible” at the expense of that which is “rational” will always be pointed out, as has happened here. — Bryan Ellis
This is just one more example of why we need “Big Government” to take care of us!
You see it is like this: We get a whole bunch of overvalued loans put into Fannie and Freddie. Then we default on them. Then we get the Obamanites to bail us out with taxpayer money. Then we get rich the democratic way with other peoples money!
If we don’t have big government run by just plain idiots then how elso could we get rich off the backs of some poor slob that believed the damn lies of not being taxed if he makes less than $250k?
Just more the same lies, decit, and idiot Chicago mob mentality of our fearless leaders.
Chris B
Maybe Obama and his idiots should start not whining about how they inherited everything. He has been in office long enough to have done something about what is going on and own it.
He is just a coward, surrounded by money grubbers.
I agree with the realtor that no limits should apply. We should all refi our houses at 5000% LTV, 5% interest for 30 years, and only have to pay interest and principal on the first 50% LTV. (No typos in that. It’s just exactly what I meant.) The Feds have already printed gobs of money and given it to the banks. We might as well get it from the banks since it is ours in the first place. THat is about the only way Obama’s policies will ever work.
Nicely stated. — Bryan Ellis
You are spot on here, how can doing the thing that got us into the mess in the first place somehow fix the issue. I am amazed at the levels of increasing stupidity put forth by our government. And we wonder why our people our so financially irresponsible, look at the countries leadership example. If you want to help these people with problems out, provide them a listing of the current rentals in the market and let the bank take care of the property because the people really never could afford the house in the first place.
Also, Obama helping the banks doesn’t seem to have made it any easier to get loans for loans that actually make sense. Where did these billions go? If Obama wants to help out, make money more readily available to investors who will go in and clean up the mess. What a novel idea.
What About HR28 The U.S. Senate is considering a bill that would severely limit the way you do business as a creative investor and, more importantly, is an inexcusable infringement of the property rights of all Americans.
HR 1728, which you can view in its entirety here: http://www.govtrack.us/congress/bill.xpd?bill=h111-1728
Personally, I see no advantage to any new programs with 125% LTV loans. They are nothing more than the same programs that contributed to our current situation. If a homeowner is upside down then in effect they already have a 125% (or equivalent) loan. If they can’t afford it then they need to modify or forebear themselves into a better situation. If any private person thinks that “need” should be a lending criteria then they can be the one to lend to those that they feel should deserve the money. Stop using my tax dollar to continue bad policy.
Hi Pazzo,
Interesting bill the House is trying to cram down our throat. People should look at the cost of this bill up front, almost 1 billion dollars a year and we know that is low and will go up each year!
The other really interesting item on this bill, besides it being of questionable constitutional legality, (but none of the people involved care about that), are some of the co-sponsors. Barney Frank pops up, surprise, surprise, here is one of the leaders of the mortgage meltdown looking for one more way to screw the people of this country. Why he is still in office is more than I can understand, he should be in jail with Madoff!
This guy couldn’t even tell his boyfriend was running a major prostitution ring out of his house, or so he says. How many of you wouldn’t be able to figure that one out? Why is this the caliber of people we have running our country, telling us how much we should make and how often we should make it?
This information is all facts, as Anthony is so fond of saying. Well here is another fact: if Barney Frank and several other cronies hadn’t been screwing Fannie and Freddie into the ground and having them make loans that were completely out of line the housing crisis wouldn’t have happened. Lots of talk about Wall Street but little talk about the real issues by this administration. All the talk has been about class injustice not the real issues.
The segment of the housing market involved in questionable loans wouldn’t have been enough to have caused the current problem without Fannie and Freddie doing the wrong thing for years, but then Anthony knows that having been part of it. It is about keeping the eyes focused where nothing is going on and telling everyone how big and wonderful the Wizard is, now where have I heard that before?
Chris B
The problem is no easy, we are in USA 300mil people, we produce nothing but, everybody has the right to survive and to have a space. There is not productive work available for everybody, how do you suggest to resolve the problem?
How do you suggest to eliminate poverty? Without poverty you could not be rich, you could not even exist. Poor masses can become dangerous they can produce bloody revolutions.
So, my friend, we must produce a miracle.
You have the ball.
Regards
ilario
I’m happy to have a discussion with you Ilario, but there must be common premises based in fact. When your premises are “America produces nothing” and “Everyone has a right to survive and to have a space” and “It’s not the responsibility of individuals to provide for their own needs (including gainful employment/income)” then there is a fundamental lack of understanding of the way our system was designed. If I’ve misunderstood your premises, please feel free to correct me. — Bryan Ellis
Chris Dodd, Maxine Waters, and the infamous Barney Frank were directly responsible for the mortgage meltdown. The banks were bailed out, fannie and freddie were bailed out. I however, was NOT bailed out. I had several properties that I paid a significant down payment on under a seller finance contract that were to be gradually refinanced as time went on within a two year period. Well, there were three left (out of nine) as of May of last year, and yes you guessed it, the rules changed and I didn’t have the 25% CASH down payment TO REFINANCE. Ultimately the seller declared bankruptcy, and I lost about 100K, when at the time of signing the SF contract, it was not an issue to refi. Loaning 125% of the propertie’s value is ignoring COMMON SENSE. The short sightedness of this administration and some of the last one is beyond comprehension. It only leads one to believe it’s all a huge plan for some pre-determined outcome.
First of all I like the President. I believe Brian does not like the man and it may be more of a personal preference than his polittics.
Collectively I don’t give a rats ass who makes money and who loses their shirt. I know everyone takes advantage of the weaker person and if you say you don’t than you’re a liar too.
Now for all of you whinny people that want to blame the current administration for all of the problems going on in your life I want to give you just a little bit of advise.
The only rules to life, government and prosperity is that you should never do the same thing twice without expecting change. Since this is a real estate forum it is well documented that when one door closes another one opens. If it didn’t happen that way how could we steal from each other without having winners and losers? Don’t worry about who is at fault for the economy, but how are you going to take advantage of whatever new rules are put on the table. And when you know how to make those big bucks keep you mouth shut and don’t blab it to everyone.
What has made this country strong is the competitve nature of its people. The whinny ones are here to feed the strong.
I agree that our business is creativity and our competitive advantage is to respond to changes in the market in the most productive way. But you appear to believe that our economy is a zero-sum game, and for one person to be successful, it must be at the expense of another, and that “theft” is the means of that success. That’s clearly not the case. Further, it’s simply unwise to suggest that the actions of government have no real effect and should be ignored due to our “creativity” potential. This Republic has succeeded for hundreds of years where other democracies have failed much sooner directly BECAUSE of the involvement of the citizenry. — Bryan Ellis
This time I have to agree. We went down this road once before with the 125 LTV loans. I was surprised when I started seeing those commercials again especially in a market that has not bottom out in most places.
So now we are purposely setting people up to be upside down on their home and leading them to foreclosures/short sales should they lose their job or have another major financial setback.
Great, this makes great sense.. overleverage, slow foreclosures from flooding the market, and keep people in their homes.. regardless of what is done usually they will still end up back in foreclosure after all is said and done it just may delay it for a year or two. This is so the market will not flood with fc all at once i suppose..
Why am NOT surprised.. He doesn’t have a clue when it comes to
anything involving finances.
Why is it that self employed business owners that have up to 30% down and actually offer jobs to other Americans by working their tail off 7 days a week have a harder time getting a loan than a 125% loan candidate? Hmmm common sense would tell me that the loan with 30e % or more down should get a loan easier right? Wrong, I recently worked with 3 buyers and 2 had over 100K down and had a really hard time getting a loan and the lady with less than $1000.00 in her account living paycheck to paycheck gets a loan no problem. By the way the lady lost her job and is already behind on a payment because she only works 3 days a week and has no savings.
Maybe we have to do something to keep some in their homes, but let’s not forget to create incentives for the self employed and employers so they don’t all just outsource jobs. Don’t forget those self employed and small business owners are the fuel and fire for this country and without them you don’t have jobs.
Well, I find myself agreeing at least fundamentally with Bryan on this one. Except for the following
“federal government – which is funded by you and me”. Nope, it is funded by IOU’s which our children’s children’s children’s children’s etc. etc. etc. will be paying. Unless of course we actually do start anteing up now.
The bad loans that were made certainly contributed to the crisis. But even if 5% of a all mortgages failed the good news is that 95% are still performing so blame the whole fubar on that. Wall street greed and I suspect some good old fashioned corruption unchecked by . . hmmm, what was the name of that last guy in the white house . .
You know who
Another interesting part of all this is obviously to push the final “day of reckoning” into the future and off Obama’s watch. Politicians often use this tactic to push things into the future, so that they are not in office when the reckoning day comes.
An excellent book on the subject of politicians and politics is “Liberty and Tyranny” by Mark R. Levin. He explains this tactic as well as others employed by “statists” to secure and consolidate their own power. This has NOTHING to do with providing housing. It has EVERTHING to do with politics both now and future.
I believe your letter to be misinformed. The purpose of the Fannie Mae and Freddie Mac refinances is to prevent foreclosure. These entities already own the loan, so there risk is actually diminished with a borrower that now has either a lower rate and payment or has switched from an ARM, a short term fixed, or an interest only loan making him better able to make his payments and therefore less likely to go into foreclosure. These loans are not available to just anyone, you cannot take out cash, you cannot payoff a second trust deed. There is no government help, its actualy a sound business decision.
Do you know where I should go for a loan modification that I will not get ripped off??