Monday, September 13, 2010

Housing Doesn’t Need Any More “Bold” Ideas

The New York Times’ Gretchen Morgenson is really unhappy with the un-meddled dynamics of the nation’s ongoing housing market correction and wants the government to step in and buy roughly $530 billion in NONPRIME mortgages in an effort to stem the suffering.

Her “boldly thought out” idea has Fannie Mae and Freddie Mac, the two massive and financially defunct government sponsored enterprises that did more to drive/sponsor delinquency and foreclosure than any other government boondoggle in history, buying, AT PAR, all performing “non-prime” loans from private mortgage pools and refinance the loans at lower interest rates and presumably better terms.

The way Morgenson sees it, the only way the government can lose is if “some” of these loans go bad.

To add a little perspective consider that this $530 billion of “currently” performing non-prime loans (as of last June) represents one third of the total $1.6 trillion loans in private mortgage pools, the other two thirds of which have already gone into foreclosure/serious delinquency.

Apparently, in Morgenson’s "bold" mind, this is a sort of win-win.

Banks/Investors walk away with 100 cents on the dollar for billions of junk mortgages and the hapless households servicing these monstrosities get a new lease on life, so to speak.

Of course, any further losses on these junk mortgages would then be borne by the taxpayer but that slight drawback seems to not even warrant a footnote by Morgenson.

No… she is so certain that taking this “bold” step is good policy that she is willing to overlook the obvious likelihood that many of these junk borrowers would go delinquent no matter what the rate/terms of their mortgages while paying top tax dollars to banks/investors for the opportunity to be the recipient of their losses.

Gretchen Morgenson is a fool.

This is yet another absurd bailout whereby the government thrusts the tax payer in front of a locomotive of toxic financial engineering and loss while calmly ushering banks/investors to a position of complete safety all in the name of supporting the housing markets and helping households in need.

Banks/Investors need to realize their losses, households with junk mortgages need to learn their lessons… housing prices need to continue to slide lower.