Please - No More Help!

The efforts to contain what is already supposedly contained took another step forward today with a $190 million giveaway by Fannie Mae.

Massachusetts will become one of the first states in the nation to try to curb rising foreclosures by raising cash through bond sales, a move that will help create a $250 million fund to help struggling borrowers refinance and stay in their homes.

Fannie Mae, the federally sponsored buyer of home mortgages, will provide $190 million for the program announced Wednesday by Gov. Deval Patrick's administration. MassHousing, the state's quasi-public affordable housing agency, will sell bonds to cover its $60 million portion.

The money will help provide foreclosure prevention counseling to homeowners, and help those behind on their payments to refinance from high-risk subprime mortgages into conventional fixed-rate loans.

Housing agencies will negotiate on behalf of individual homeowners. The state will seek to have lenders absorb some of the financial hit from recently declining home values by encouraging them to agree to new loans smaller than the ones that got homeowners into trouble, rather than pursuing foreclosure.

"They can either accept 90 or 95 percent of the original loan, or they would have to take that borrower through foreclosure," Tina Brooks, Patrick's undersecretary of housing, said in a phone interview. "Foreclosure means making a bet that once the lender receives the property, they would then be able to sell it at a value to recover the full balance of the loan, plus all of the costs involved in taking it through foreclosure."

Massachusetts' $250 million fund is expected to help hundreds of homeowners stay in their homes through loans covering up to 105 percent of the appraisal value of their home -- an amount that will cover closing costs, on top of the loan total.

Borrowers can be up to 60 days behind on mortgage payments and still be eligible. But they must be behind because their interest rates reset to a higher level; if they simply accumulated more debt through poor spending, they're ineligible.

In a separate announcement Wednesday, Attorney General Martha Coakley said her office reached a preliminary agreement with subprime lender Fremont Investment & Loan to immediately halt foreclosures on the firm's mortgage loans in Massachusetts.

Who's Helping Who?

• There will be 2 million foreclosures this year and this program is expected to "to help hundreds of homeowners". Why even bother?
  
• One even has to wonder about that help. Is this helping Fannie Mae keep overpriced assets on their books or the consumer?
• For anyone deep in the hole on the amount of their mortgage vs. the actual worth of their home, this help is more like a Trojan Horse.
• Furthermore this is not really helping Fannie Mae either (although they think it will or they wouldn't be pouring $190 million down the drain). The reason it won't help is it is just going to delay as opposed to stop foreclosures. When these houses do finally go into foreclosure they will be worth even less than they are today.
• Thus throwing $250 million at this is a waste of time and money all around.
• Massachusetts taxpayers will be stuck with a $60 million bill further rubbing salt into the wound.

This Program is useless.
Strike that. It's actually harmful for all the parties involved.

A Look at Prior "Help" Efforts

• It was the Bush Ownership Society and hundreds of government programs (including the creation of Fannie Mae) that helped create this mess.
• Of course the Fed helped matters along by slashing interest rates to 1%.
• Illinois Governor Rod Blagojevich helped things along with a program guaranteeing mortgage loans for illegal aliens.
• President Bush tried to help with tax credits for homebuilders "To boost housing sales even more, Congress needs to pass my single-family homeownership tax credit," Bush told a meeting of the National Association of Realtors on Friday. Bush said the credit would increase the supply of affordable single-family homes by as many as 50,000 each, with the aim of increasing the supply of affordable homes by 7 million over the next 10 years.
• Housing and Urban Development Secretary Alphonso Jackson sure helped things with this a message to sub-prime lenders: "We need to reach out" to African-American, Hispanic and other first-time buyers with better loan concepts, more flexible guidelines and quicker service, said Jackson in an interview. "I am absolutely emphatic about winning back our share of the market" that has slipped away to subprime lenders."
• The final help came with words of encouragement from Greenspan telling everyone to go for adjustable rate mortgages.

See Should the government sell bread, orange juice, or mortgages? for more on HUD secretary Secretary Alphonso Jackson. That piece was written on May 18th 2005. I closed with this thought "Since there is no conceivable way this can possibly end well, I have a fail safe prediction: It won’t."

Please - No More Help!
We've had all the government help we can take, and then some.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/