Bush Throws the Baby Out with the Murky Mortgage Bathwater
RAW Election Year Politics
Once again, President George Bush has committed the unpardonable conservative economic sin; he has interfered with market forces by launching his sub-prime mortgage bailout program known as a “Streamlined Foreclosure and Loss Avoidance Framework.”
Predictably, Democrats, such as U.S. Senator Charles E. Ã¢â‚¬Å“ChuckÃ¢â‚¬Â Schumer (D-NY) marched out to microphones and cameras, denouncing the initiative as not aggressive enough because it fails to include those with one late mortgage payment and begins to late for some borrowers. Yea, yea, yea. Our expectation is that the Dems will fuel this sentiment further by proposing even more far-reaching solutions.
Has Bush thrown the healthy baby out with the murky bath water? REALonomics reviewed the plan and found it lacking the type of clarity and protection for the real estate economy that is needed for this crisis.
Bush’s formula is another sub-prime mutation that will further derail the recovery, create a false support system for the mortgage industry and result in dragging all borrowers in the uncharted economic waters. Furthermore, REALonomics contends, as do many mature minds within the industry, that Bush’s plan may lead to a plethora of litigation problems for the mortgage markets.
Naturally, counter to the best economic minds in the industry, the National Association of Realtors endorsed Bush’s bail out scheme with a statement from its President Richard Gaylord claiming, “The loan modification program introduced by President Bush and U.S. Treasury Secretary Henry Paulson is a good first step in helping deserving families keep their homes.” We believe this is more than a “loan modification program.” It represents a modification to a fundamental economic precept in the real estate industry; natural market cycles are an integral component of a healthy real estate economy.
REALonomics contends there is a likelihood of the initiative delaying true recovery, based upon real cyclical economic principles such as supply and demand, inventory absorption rates, price adjustment cycles and investor involvement in foreclosure properties.
What the ASF Statement actually does is create a laboratory for mortgage underwriting experimentation. REALonomics analysis indicates that the ASF initiative may create an incubator into which we place the current mortgage genome that could mutate into a life form that infects all borrowers. Indeed a grafting of a new species of mortgage lending into the branches of our economic model. Will this action rewrite the sound traditionally acceptable DNA code for FICO and debt to income ratios that have guided the mortgage industry for decades?
There is no government bailout of Broker/Owners who are currently facing the most difficult real estate market, perhaps since the Great Depression. After all, that wouldn’t garnish many votes, would it?
The ASF Statement makes REALonomics wonder what sorts of new mortgage schemes will emerge as the slime escapes the laboratory and finds its way into the veins of a desperate mortgage industry. In effect, all of us will be thrown out and those without sub-prime loans will also be impacted by further declines in home values and another left hook to the head of an industry already out on its feet.
VOTE IN THE CURRENT REALONOMICS POLL ON THIS PAGE
Read the ASF Statement for yourself.