As you all know we are in the middle of the deepest recession our country has seen since the 1930's. Yes I said in the middle of, because we are not out of the recession yet. The 3.5 % growth that the Fed says we experienced in the 3rd quarter was all because of Government money. From September 08' to September 09' the Government loaned or funded 3 trillion dollars worth of projects into our economy. When the fed figures GDP, they figure these funds as well as everything else.
One of the programs put into place by our Government was the Making Home Affordable Program. Since it was the housing market that got us into this mess the Government felt that a program like this could help to improve the market and help pull us out of this mess. The program had two parts to it and President Obama promoted it as being a program that could help as many as 9 million households lower their mortgage payment and even help them stay in their homes.
The first part of the program would allow those who were caught with dropping home values who wanted to refinance actually do so. When your house value gets to close to the loan amount or even drops below it then the mortgage companies won't take the risk to refinance your house. The governments program would insure these companies losses on these riskier transactions. For example your home could be worth 250,000 dollars and your loan could be $275,000 and your you would be able to refinance. Before you would have been refused.
The second part of the program deals with modifying the loans people made. It is mainly to be used for those who had gotten into terrible adjustable and negative ammortization loans or loans that were far beyond the normal 31% debt to earnings ratio typically required for home loans. Those who need this program have no other way out and would foreclose if they did not take this program.
This program was set up to help people, but looking at the fine print of the program shows that it is just as toxic as the loans that were originally given to these people. This program reduces the interest rate of a persons home loan to 2% or gets their debt to income ratio down to 31%. The problem with this however is that instead of helping these people, the Government is taking these reduction and placing them on the back end of the loan. So whatever savings these people will get now to stay in their homes will get placed on the back end with interest. Not only that, but the reductions are fixed for only 5 years. The program is at best an infected band aid. After the 5 years the rate goes up to whatever the current interest rates are at that time. which could be far higher by then. Then their loan becomes adjustable every year after that for the life of the loan. How is this any better than the toxic loans that were allowed during the boom years of the housing market? This program sounds like it was setup to make the rich get richer in the long run and keep people in their home a few extra years before they have to go through the process again of going into foreclosure.
The refinance section of the program was put into place to help those who had done all the right things but got caught under the avalanche of home prices and were unable to do so. President Obama touted this measure as a way to help these people get into a lower monthly payment. Again however, I think this was just another way to get more money for the banks. Sure, this program allowed you to get a refinance, but of course you would have to pay all of the closing costs and fees to do so. After all is said and done you could end up paying $5000 for only a small reduction in your monthly payment. Had the government helped with the closing costs for this program it would have been far more effective.
To date only 200,000 people have been helped by these programs because most see that they are not a fix, but programs that may help them in the short term, but long term could put them in a far worse position. Obama's program, which was meant to help people through this very difficult time, and make home affordable for them has turned into a program full of as many toxic parts as the loans that got us here in the first place.
When I was younger I was all for Government intervention all the time. They are the government, they must have our best interest at heart, right? As I get older I realize that Government is the last group that you want taking over things in our lives. The Government does things very inefficiently and has only one thing in mind, power. The government should focus on 2 things, dealing with foreign policy and keeping a strong military to keep us safe. Everything else they touch turns into a bureaucratic mess of men battling for power which leads to control over its citizens and nothing ever getting done.
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