Renthusiast2.0

Seattle based Jillayne Schlicke, winner of this weeks ‘Odysseus Medal’; highlights in her post what she believes to be the hypocrisy in President Bush’s Homeownership Financing initiative, which is supposedly a ‘common-sense, risk-based pricing structure’ scheduled to begin January 1st 2008.
The main aim of the initiative appears to be a modernization program aimed at the Washington based Federal Housing Administration (FHA), a government agency that provides mortgage insurance to borrowers through a network of private sector lenders.

“In the coming days, the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we’re going to start reaching out and making sure people know that this option is available to them so they can stay in their homes” according to the president.

The problem with the above statement is that homeowners with good credit history aren’t usually the ones with sub-prime loans and are therefore less likely to be the ones feeling the effects of the current crises. Furthermore current indications in the prime mortgage market appear stable; but that may change as the credit crunch continues to bite.
Schlicke’s argument also suggests that it takes an enormous amount of effort for a mortgage broker to become FHA-approved, and that it’s really not worth it because of the ’small details’; including net worth requirements, audited financial statements, quality control and compliance issues, plus a rigorous employee payment requirement.
According to Ms Schlicke, for some small to medium sized broker firms, it was:

“a business decision: make more money selling subprime and leave the hassle of originating FHA loans to the banks. “See ya, wouldn’t want to be ya” was the motto when bank [loan officers] left to work for a brokerage firm where all the women and men were hotties, yield spread rapes were encouraged and celebrated and the underwriters gave unconditional loan approvals because the underwriters reported to the sales manager or were threatened with baseball bats.”

Bush also claimed in his statement that if a mortgage broker was ‘cheating somebody’, his administration would ‘find you and hold you to account’, reminiscent of the ‘with us or against us’ war on terror rhetoric, which – if history is our best teacher, well, need I say more?
Needless to say, any Bush initiative at this stage of his presidency will most likely be dismissed as hogwash by most people as its become way too easy to dismiss the man as a buffoon.
Truthfully, at the moment his words appear to be shallow political rhetoric, but if the credit crunch hits the prime mortgage industry, they may prove to be a little deeper than first imagined. And if the US economy recedes because of housing, his words may actually resonate further than we would all like to hear. If it gets to that stage, the program may not appear to be so useless after all.