Monday, October 06, 2008

Section 110 of the 'bail out' bill...

Here I'm copying part of Section 110 of this horse-crap given to us by Congress and the rest of the government last week. If you want to read all 451 pages of the thing it is linked right here.

(1) IN GENERAL.—To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets secured by residential real estate, including multi-family housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.

(2) MODIFICATIONS.—In the case of a residential mortgage loan, modifications made under paragraph (1) may include—

(A) reduction in interest rates;
(B) reduction of loan principal; and
(C) other similar modifications.

I'm not happy with (A), (B), and (C). Not happy especially since there are no 'limits' included here.

I found the following point made on a discussion forum but I have no way to credit the person who shared it.

No clause defining the mortgages that the law covers (mortgages obtained during the “boom” that were in “bubble” markets).

No clause defining the amount principal can be reduced (20% of original purchase price would have been good).

No clause defining the amount interest can be set (2% over prime would have been good).

No clause defining the term of years one’s mortgage could be extended (5 years, perhaps).

The result is that banks will not know “how far” the initial terms can be modified. Would you loan someone $200,000 at 6%, knowing a judge can modify the terms to $50,000 at 3%?

The result? A dry-up of the mortgage industry as banks can not estimate potential losses. Without mortgages, people will not be able to buy. No buyers means lower house values. Lower house values will mean more people will be “upside down” in their house payment, wanting to take advantage of Section 110. A vicious cycle of the “race to the bottom”

The way I'm reading this... this appears to be the end of the 'free as it can be' market from determining price for housing and even lending for housing. Looks as if these Federal property managers will make the final determination.

If I'm interpreting this wrong... please feel free to correct me or point to more context that eases my view that we just accepted socialism as the course for home ownership. This wreaks of opening Pandora's Box... and it makes me wonder why the National Association of Realtors encouraged me to ask my elected leaders to support this horse-crap bill.

But hey... the Phillies won and will play in the National League Championship Series starting on Thursday... so I got that goin' for me.

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