Want to buy an overpriced house in Las Vegas? You’re about to!
By Matt Kibbe Posted in Barney Frank | Chris Dodd | Congress | Countrywide Financial | Dodd-Frank | Mortgage Bailout — Comments (16) / Email this page » / Leave a comment »
Thanks to Matt for stopping by to post this. Matt Kibbe is the President of FreedomWorks. --Erick
The current correction in the housing market is painful for Wall Street and many homeowners. Not missing an opportunity to ‘solve’ a ‘crisis,’ Congress is attempting to save the day with the Dodd-Frank bailout bill that is scheduled to hit the Senate floor later today.
While supporters try to sell the bill as legislation to help folks facing foreclosure, a closer look shows who benefits and who ultimately pays.
Dodd-Frank creates a new $300 billion taxpayer loan guarantee facility that nearly doubles the size of the Federal Housing Administration (FHA), and allows mortgage lenders and banks to cherry-pick the worst performing and riskiest loans in their portfolios and offload them onto the FHA, creating new loans that shift 100 percent of the liability to the taxpayer.
Read on . . .
The Congressional Budget Office estimates that 35 percent of the loans will eventually default even after they are refinanced through the new program. This is hardly a good deal for taxpayers or struggling borrowers but it is a great deal for the banks that get to unload their problem loans. And these are not small loans. There are no income caps for borrowers and the House version of the bill would refinance loans as large as $729,000, which is more than three times the national median home price.
So this is how you are about to buy property in Las Vegas. Someone who recently bought a house they could not afford, with no money down, and from a bank that did not even document the borrower 's employment, suddenly finds himself unable to make the payments.
Both the borrower and lender placed a bet that housing prices would go up forever, and that the borrower would be able to flip the house for a profit if they could not make the payment or before the payment reset.
But that bet did not pay off, and unlike losing at poker, banks and overstretched homeowners are looking to Washington to fix the bad bet.
Under Dodd-Frank, the bank will be able to dump the loan onto the FHA after the principal owed has been reduced. But with a one in three chance the borrower will still not be able to make the reduced payments and default, the FHA will and the taxpayer will be on the hook.
Congratulations, John Q. Taxpayer, you just purchased a home in Las Vegas!
To view a coalition letter by leading taxpayer groups that was sent to the Senate today opposing the bailout, please click here.