Same People Who Destroyed Housing Market Now Proposing To Fix It

By Author: Nick Adama
Total Articles: 197
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A few weeks ago, President Obamamade yet another announcement about the banking and housing markets. This latest one will be an enormous overhaul of regulations on banking and the financial industry. So, since a new government plan will soon be unveiled promising to save us all from economic ruin, it might be a good time to evaluate the successes or failures of previous government plans.

Since the banking meltdown began in the summer of 2007, there have been dozens of attempts by the politicians and bureaucrats to discourage bad lending, encourage lending to the poor, provide incentives to investors, reduce CEO pay, making housing affordable, prop up housing prices, divert money from private employment to new government jobs, and so on. Have these dozens of regulations helped yet?

One of the first programs was the Hope Now Alliance, developed to help banks, the government, and homeowners work together to modify mortgages that were in danger of foreclosure. The program was voluntary for the banks to participate in and more borrowers ended up with expensive repayment plans than actual loan modifications. But even ...
... the modifications have a 60-75% redefault rate.

To help financial institutions that had created securities out of mortgages but had no buyers, regulators proposed a Super Conduit to funnel investor money into these worthless securities. At the time, the government thought the problem was frozen markets -- in reality, the freezing markets were only a symptom of the problem that no one trusted or wanted these bad loans any longer. There were no buyers for the super conduit.

In April of 2008, the government decided to provide insurance for $300 billion in new refinance loans, along with giving $15 billion in handouts to the state governments. The refinance insurance was designed to assist close to 500,000 borrowers, although it does not seem to have made much of a dent in the foreclosure rates for the country as a whole.

A few months after this, in July, the Federal Reserve came out with some of its most obviously unnecessary regulations. It finalized new rules requiring mortgage lenders to verify borrowers' incomes and their ability to pay back mortgages that were made. In all honesty, any bank not doing this deserved to go out of business, but apparently the Fed had to waste time and resources to tell the banking system not to kill itself.

In December of 2008, President Bush announced a the new FHA Secure program, another voluntary plan which encouraged banks to lose money and recognize losses on their balance sheets. The plan was to freeze interest rates on mortgages, although this was after many rates had already reset to higher monthly payments.

By now, everyone knows the fate of the Hope for Homeowners program, which was another brilliant idea to save homes from foreclosure. After being given over $300 billion, the end result has been one family facing foreclosure has received a new loan. The remaining applicants did not qualify for government help or their banks would not participate in the voluntary plan.

And months after President Obama's economic stimulus plan was passed, unemployment in almost every sector of the private economy is increasing. The only real job gains (besides the figures the government just makes up) have come from the government hiring people. Unfortunately, though, this is just another drag on the economy as the state produces nothing of value in the market.

The one regulation that props up all the bank failures and encourages mindless lending decisions is the FDIC insurance on bank deposits. The entire regulatory structure of banking encourages the financial institutions to take excessive risks with depositors' money, knowing that the government will step in and bail everyone out in case of disaster. This is the regulation fueling the fraud and it has been increased.

But now, the regulators in Washington who set the economy up to fail, did not recognize the severe problems in giving loans to the destitute, and denied the collapse as it was happening, are now going to give us a new regulatory structure. How these people were ever believed when they proclaimed themselves the experts and saviors of the economy is completely unbelievable.
Nick writes articles offering foreclosure help and solutions to borrowers who are at risk of losing their properties. His sites examine many different solutions to saving a home, including large sections on how to qualify for a loan modification that will not almost certainly default. Visit his site now to discover more about how foreclosure works and how a mortgage modification will benefit you: http://www.foreclosurefish.com/