Why hasn't a Federal Refinancing Bank been established?

[ThomWV]

I understand that mortgage foreclosures are the scapegoat for the world's economic woes, but indeed people are losing their homes. In light of the benefits to be enjoyed by all of us from a stronger economy it would seem to make sense to me to bail out homeowner's who are in trouble and it seems to me to make it easy enough for that tho happen. Establish a Federal Refinancing bank. I don't know what interest rate would hatch out of of the demand for such a service but let is say that the bank would offer nothing but 5% (I chose this rate only as a filler) fixed rate 25 year mortgages and only offer to them to homeowners who occupy the residence they intend to refinance and that it currently be in foreclosure. There, if you don't want to lose it and you got sucked into one of those time-bomb mortgages that we hear so much about, here's the way out.

[Oregone]

1. No shit. This is a great idea (it would also force down the private market)

And minimizing refi fees would be essential.

I just called on a refi of 100K, going from a 30 to a 15, from a 6.125 to a 4.5, and they would charge me $4500 dollars to do this?!? It would take 3-4 years to break even if you factored the fees in. Thats just insane.

[flvegan]

2. Why go through the trouble of refinancing? Have this "bank" just buy the distressed debt.

Could probably short-sell 75% of the loans and a 20% discount. No closing costs, no issues with lien priority...

[Peace Patriot]

3. You gotta read THIS. The disaster we are looking at is from bets made on YOUR FAILURE

to meet your mortgage payments, foreclosure and re-selling. These fuckwads built up a $600 trillion bubble speculating on the FAILURE of the economy. What's happening now is that many of those shits are being PAID OFF with our children's children's work lives, but there isn't enough money in the world to pay the filthy multi-zillionaires ALL of their filthy fuckwad money. Any help to homeowners drives the system further down the rat hole because their various "instruments" for idle rich high-end profiteering were insurance scams, and speculative sale of these scams, that pay off only upon FAILURE OF HOMEOWNER MORTGAGES. They are stuck with what they call "debt" (their gambles on failure)--trillions!--which CAN'T be paid off, which is why credit is frozen. If they loosen up credit--say, with a Fed Insurance institution--zillionaires will become mere billionaires again, and the darlings don't like that, don't like that at all.

I never understood this until now. See

http://www.villagevoice.com/2009-01-28/news/what-cooked-the-world-s-economy/1

It is one lightning storm of an article. The author, James Lieber, says they should all be in jail--the speculators, the heads of their ponzi scheme financial institutions, those who lied for them at indexes like Standard & Poor, and those who deregulated them, and as much as possible of the money confiscated. But he doesn't hold out much hope that this will happen.

[MadHound]

4. So we should reward people who were foolish and greedy by giving them a better interest rate?

Some idiot goes out and gets a no down payment, ARM loan for a McMansion that they can't afford and you propose that we should now, on my dime, give exclusively them a better interest rate and refinancing package than I, who did everything right, can get.

Fuck that. Where's the reward, where's the bailout for those of us who have done the right thing? Oh, yeah, that's right, we're supposed to keep on paying and paying, bailing out the rich, the stupid, the idiotic until we we're bled dry.

Fuck that.

[notadmblnd]

5. Because something like that might actaully help individuals...

and the powers that be have already decided that there will be none of that. Besides, the people that run these corporations are so much wiser and educated than the rest of us that they would never make unwise financial decisions. We need them to fix it for us:sarcasm:

[PSPS]

6. Simple. Because it's a horrible idea.

Let's say someone bought a $750K house with a "liar's loan" (option ARM, NINJA, etc.,) and their real income is, say, $40K/year. In the real world, that income qualifies for up to $1,200/month in a PITI payment with a 5% 30-year fixed loan, so you are eligible for up to about $210K worth of mortgage. Even if you have enough non-borrowed cash on hand to make a 20% down payment, that comes to $260K worth of house.

You see, it isn't the interest rate that is the problem. Even a 3% 30-year fixed would get only $260K worth of mortgage in this scenario ($325K worth of house with a 20% non-borrowed cash down payment.)

The real problem is the over-valuation of the house. It was never worth $750K to begin with. Nevertheless, that's the amount owing. So the only way to keep this person in their house would be a "cram down." But this can't work either because what happens to the $490K difference? You want my tax money buying this person's house for them? Think again. They should lose the house and rent like they should have been all along.

This has a beneficial side effect too. Comps will be hammered and housing prices will continue their downward spiral back to what they should have been all along. Then more people will be able to legitimately afford houses again and the real estate market will come back to life. I see this in many areas around the country today. Where the prices are reasonable, houses are selling just fine. And it's easy to get a mortgage today if you qualify.

[Vinca]

7. I think they're discussing the idea of a "bad bank" to take care of foreclosures.

I have no idea if it's a good or bad idea, but something has to be done to turn the housing market around. Wasn't the Resolution Trust a similar institution during the savings & loan scandal?