Obama, Housing and the Next Big Heist

Obama, Housing and the Next Big Heist: I previously supported the government's attempt to allow homeowners to get a chance to refi out of toxic loans. However, I strongly object to this part of the plan as uncovered by Mike Whitney:

 And Merkley’s proposal is just one two bills now awaiting congressional action. The other is the Boxer-Menendez bill which “promises lenders they won’t be forced to absorb the loss on refinanced loans that default.” (Bloomberg) Great. So, while the Boxer-Menendez bill will not refi loans that are not backed by Fannie Mae and Freddie Mac, (no “private label” loans) it will move (an estimated) one million high-risk mortgages off bank balance sheets and onto the public’s ledger. This is how the free market capitalism works in the US today; all the profits go to Wall Street and all the red ink goes to Main Street.

Certainly this would work as a stimulus to the economy and I understand that. And moving mortgages off the books of the banks will also ultimately cause banks to lend more money. Yet it really should be up to the banks to quit writing toxic mortgages in the first place. And it is clear that they want many, many more of those loans written as they seek to have all mortgages guaranteed by the government going forward.

Talk about moral hazard; that is moral hazard.And the rest of the article is devoted to the exposure of banks wanting loosened regulation so that those not qualified for mortgages will be able to get them, to the borrowers' peril.

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