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The Return of the Subprime Mortgage


The US Government is at it again...  File this under “you can’t make this stuff up” if it goes to its apparent conclusion.  

What now?  The Administration is again fueling the sub-prime mortgage crisis with its well-intentioned ignorance.  Apparently, 2007 and 2008 are gone and forgotten inside the Beltway of Washington, D.C.  Only this time there is a twist.  Now borrowing money is an “entitlement.”

This happens when the time horizon for elected representatives is between 2 and 6 years, depending on where they sit.  But none of them seem capable of thinking ahead to the future of this country and its people.

The White House has introduced a new low-income mortgage program, using a new set of rules that make qualifying for a mortgage easier.  Yea, that’s the ticket!  After all, we are all “entitled” to home ownership and a large new mortgage, right?

What could possibly go wrong?

Here are the details:

  •          The new program is called the “HomeReady Program”
  •          It is offered through Fannie Mae
  •          The same Fannie Mae that went bankrupt, remember?
  •          Who do you suppose paid for that?
  •          The goal last time was to increase overall home ownership by allowing low income and minorities to get mortgages
  •          After all, isn’t that the “America Dream?”
  •          Underwriting standards were relaxed to the point that almost anyone could get a mortgage
  •          FICO scores and other factors that correctly predicted failure of the loan were ignored - intentionally
  •          And we paid, as the so-called “sub-prime loans” started to fail
  •          And then the failures escalated
  •          And then it became a full-blown financial crisis
  •          And that, my friends, cost us all a BUNCH of money

Politicians want you to believe that Wall Street greed causing the problem.  They are, of course, passing the buck.  Again.  But they are obfuscating.  Again.  Now, they have invented some new terminology so as to confuse the public.

I am not confused by the new words.  You won’t be, either, in a minute.

Aside from the new name (HomeReady), the White House has developed new qualification standards to once again circumvent good practice for loan qualification.  This time, income from other people is aggregated for qualification to get a mortgage.

What’s wrong with that?  Not all these people are required to be on the Note and the Mortgage!  How confident am I that they will bail out the mortgage if the signers default?  As you can probably guess, not confident at all!

But is that enough for our Administration?  Not on your life!  Because the term “sub-prime mortgage” is so out of favor, they simply renamed the new low-quality loans “alternative loans.”

Alternative to what?  Secure?

Part 2 will follow next week.  Listen to the show and then catch the Blog.