Blog with MAE Capital

Home owners that are underwater on their homes have heard that our wonderful government has promised to help them refinance to lower their interest rate may fall not happen at all. Here is the deal, President Obama announced in October of 2011 that the Government would start a new HARP 2 program allowing home owners that have been current on their mortgages and owe more than their house is worth to refinance to lower interest rates. Well the real deal here is that Obama made FNMA and FHLMC (Fannie Mae and Freddie Mac) amend their loan securitization guidelines allows lenders to securitize loan with them with no loan to value limitations. This sounds great, but unless a big bank/ servicer of mortgages will service (or collect the payments) these loans cannot be done. We have been told that this program would go into effect March 17^th 2012. As of yet there has not been a bank or institution willing to purchase the servicing of these loans so as this date approaches there is still no resolve in who will buy these loans in the secondary markets. This is opposite of what happened during the sub-prime years where the government told lenders to lend and they did and well you know the rest. This time lenders are not falling into the government deception of telling the private sector to make loans the private sector knows are bad before they fund those loans.

So here in lies the rub, the Government (FNMA FHLMC) can buy the underlying security but the lender who funds the loan has a bad loan they cannot sell to another lender to recapitalize their funds. Thus lender are a little hesitant to originate these loans when both barrels of the gun are pointed at them. The first barrel is a loan that has no security meaning if the home buyer loses his or her job and cannot make the payment and goes into foreclosure the lender cannot even sell the house to pay off the mortgage as the house is significantly less in value than the loan amount. The second barrel is that if they needed to sell the servicing rights to that loan who will buy it when the loan amount is higher than the house that secures the loan is worth significantly less? So although we would all love for this program to come to fruition the likelihood of it really happening has to be slim to nil. The banking crisis is still bad, what would this look like to a bank where their book assets are less than their loans outstanding. Politics have no business in the business of business as the individual is the one that will be hurt by this in the long run both as a home owner and by the economy it creates.

Again comments are much appreciated.