Ok here’s a shocker.
Despite all of the hype, the subprime bailout plan has helped practically no one.
In fact, the number of people that is has actually helped is so small so far that it makes you wonder why it even exists in the first place.
But then again this is an election year–that time when fluff easily trumps substance.
The comical part, as it turns out, is that the states don’t want anything to do with these lousy loans either.
Read on.
From Bloomberg by Michael McDonald entitled: Bush Subprime Plan Undermined, States Shun Borrowers
“President George W. Bush’s proposal to help 1 million subprime borrowers avoid foreclosure with tax- exempt bonds has an obstacle: states don’t want the risk any more than private lenders do.
The state housing agencies that are already offering mortgage refinancing options are turning away so many applicants that they’ve had no need to raise funds. Since New York said it would commit $100 million in July, three of the 500 loans envisioned have been made. Massachusetts extended four loans under a $250 million program started in August, and Ohio made just 36 of the thousands anticipated by Governor Ted Strickland.
The reluctance to lend threatens to undermine a pivotal part of the president’s plan for alleviating the worst housing slump in 26 years. More than 50 percent of subprime borrowers are being rejected by state programs because their homes have lost too much value or they’ve accumulated excessive debt, estimates Geoffrey Cooper, emerging markets director at a unit of MGIC Investment Co., the country’s biggest mortgage insurer.
“These things are basically public relations gimmicks,” said Bruce Marks, chief executive officer of Neighborhood Assistance Corp. of America. The Boston-based nonprofit organization negotiated an agreement with Countrywide Financial Corp., the biggest U.S. home lender, in October to modify rates and terms on $16 billion of subprime mortgages to prevent foreclosures.
“Often the borrower just has too much debt and the home does not have the value to support the refinancing,” MGIC’s Cooper said at a conference in Washington on Jan. 17.
When Ohio rolled out its program in April, Strickland said he anticipated selling more than $100 million in taxable bonds because the state was “facing a crisis.” The Democrat told residents to apply to refinance their subprime loans with 30- year fixed-rate mortgages.
The prospects changed once officials saw how many applicants were ineligible because they’d missed a mortgage payment in the last year, said Dawn Larzelere, the legislative affairs director at the Ohio Housing Finance Agency in Columbus.
‘I don’t think our lending standards are too high,” said Larzelere. “I think people have gotten in too far over their head.'”
Gee you think?
By the way, here’s another great article on how it’s not the rates these days that are driving defaults, but falling prices.
That’s the 800 lb. gorilla that no amount of “programs” or rate cuts can cure.
From the Financial Times by Krishna Guha and Gillian Tett entitled: Last year’s model: stricken US homeowners confound predictions
I’d excerpt it here, but it really needs to be read in total. Not once but twice.
