Wednesday, February 18, 2009

The Housing Plan

We finally have the plans from our government to stop foreclosures and keep home prices as close to the bubble, unaffordable levels as possible.

I've been talking about my thoughts on what the plan would look like for the last few months, and unfortunately it appears they have created the exact plan that I have been describing.

The first part is to stop homes from going into foreclosure. They have announced up to $275 billion to support homeowners both in foreclosure and moving toward it. (The dollar amount is a moving target as is every new initiative)

The plan is designed to save 9 million families across the country from having to do the horrible, the absolute unimaginable..........move out of a home they cannot afford and rent instead. I can't fathom what would happen if a family was forced out of a home where they pay $5,000 per month for a mortgage and would have to move across the street into a home that is probably nicer than the one they are currently living in, and then pay $1,500 per month in rent instead.

So part one is to get mortgage payments at 31% of the borrower's total monthly income. The government will work with lenders to get the loan value down to this amount, both through principle reductions and lowering of interest rates through government subsidies.

Now, any family with any sense what so ever, will immediately lower their income as much as possible to qualify for a lower payment. If there are two people in the household working, then maybe the wife can now stay at home until the payment is lowered and then go back to work after. This should be a tremendous help to our unemployment rate which is skyrocketing toward 10% as we speak.

For families that continue to make the subsidized payments on the homes they cannot afford, the government will send them a check for $1,000 to $2,000 per year as a thank you for continuing to do the right thing.

The second part of the plan, the one that I have been warning is fast approaching, is the government's new use for Fannie and Freddie, the newly nationalized vehicles of mass destruction. The government is now doubling the stock given to the companies ($200 billion each) and allowing them to keep up to $900 billion in their portfolios.

These are just temporary numbers as well. Because no rational investor in this world would lend an American money to purchase a home at bubble prices, Fannie and Freddie will be the only lender. Their current portfolio hovering around $5-$6 trillion in loan guarantees will most likely swell to $9-$10 trillion in the coming years. Because they are lending money to homeowners at inflated prices that cannot afford to pay the mortgage, most of these loans will go bad over the next few years. The cost borne by the taxpayers will be around $1-$2 trillion based on rosy default projection.

And by the taxpayer, I mean the government. And by the government, I mean foreign countries which is where we get the money. I wonder how the Chinese are feeling about financing this catastrophe?

Someone asked Luo Ping that question yesterday. He is the director general at the Chinese Banking Regulatory Commission, and he let us know his feelings on the current administration:

“‘We hate you guys[U.S.]. Once you start issuing $1 trillion-$2 trillion[of debt] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.’”

Ah, the Valentine's Day love is in the air. Just wait till we tell them that $1 - $2 trillion is a very low estimate for the oncoming carnage coming from our insane asylum.

No comments:

Post a Comment