Tuesday, July 8, 2008

Will Mortage bailouts work?

The Senate voted 76-10 Monday to advance the bill, a broad array of housing measures including overhauls of the Federal Housing Administration, the Depression-era mortgage insurer, and government-sponsored home loan giants Fannie Mae and Freddie Mac.
Its centerpiece is a new $300 billion FHA program to allow debt-ridden homeowners who are currently too financially risky to qualify for government-backed loans to refinance into safer, more affordable mortgages.

The question is will it work and this assumes the President would actually sign it into effect? I am not sure. It seems that the concept is good but I wonder if taking risky people who should not have bought a home in the first place and refinnancing them with more affordable loans really solves the problem.

Its is really about confidence in the market, and at the moment there doesnt seem to be any. The bigger real problem is that regular homeowners who didnt use their house as an ATM, and want to sell can't because of lack of consumer confidence. Case in point, we have a house on the Market in Indy at 279K we started at 350 and it appraises at over 400K. Despite the instant equity anyone would have if they bought that house, everyone is afraid to enter the market for fear it will get worse.

In our case we have to look at potentially leasing out this home, which will be easy since quality property for lease brings a premium but we get the whole set of headaches from managing a property 100 miles away and our equity is tied up.

This is really about perceptions and I think until the "media' decides it OK to buy housing again, these bailouts will not really help the market recover. At best right now its a very expensive bandaid

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