With a lack of details (I can't find a copy of the actual proposal, just empty summaries), it's hard to judge Bush's latest charm offensive.
VOLUNTARY - "WE'RE FROM THE BANK AND WE'RE HERE TO HELP YOU!"
Did investors never realize that they might have some, er, legal risk, by gobbling up loans put together by ... brokers with day-old reputations and with no fiduciary responsibilities?
The first thing to note is that the plan is voluntary. The basic elements of the law binding loan servicers to act only in the interest of lenders is unchallenged, formally. "Guidelines" don't cut it, do they? [Except, if everyone is refusing to modify loans in one way, then it's harder to sue for better treatment, maybe ...]The list of "loan servicers", caught in the middle between borrowers and the people who hold the securities that include the mortgage loans, is ... secret. I wonder why. They are reportedly worried that they might get sued, ... by the lenders! Why does that look like a smokescreen (I mean, how often has that ever happend - I honestly don't know)? Did investors never realize that they might have some, er, legal risk, by gobbling up loans put together by ... brokers, with no fiduciary responsibilities?
Barney Frank seems to have more comprehensive legislation that increases penalties for people who profit from bogus lending practices. (Although one might have expected the DOJ to be have been filing some charges, already ...)
PAY FOR COUNSELORS - POLICY FORMATION IN AN INFORMATION VACUUM
Bush wants Congress to send money to non-profits that help counsel people about their loans.
Congress might consider sending money to legal aid groups, so that borrowers can get a good attorney, the more one reads about the types of problems.
Seriously, the asymmetry between what the lenders know about the loans and what the policy makers know seems large, since there is no consensus on what the typical problem loan looks like, just logical "categories". Why does it rest with Andrew Cuomo, AG from New York, to subpeona the data that policy makers could use? Maybe I'm wrong on that, but until one sees a breakdown, it's smoke and mirrors time.
FHA AS LENDER BAILOUT VEHICLE?
Under the plan, lenders with junk-loans get to pass them off to the FHA, who is supposed to accommodate them.
Wha?
From that perspective, it looks like a bailout of the lenders, not the borrowers. Why is that not a surprise.
I know Barney Frank is behind FHA reform, but I don't understand why he thinks the government programs should get into the business of lending to sub-prime. Leave this market to the private sector, I say. Even Johnson only promised a chicken and a car, never a house at any price. Second, I don't understand why Frank thinks that higher insurance premiums (and lower downpayments) are sufficient protection for taxpayers, who ultimately back the FHA.
Without being close to the situation, I think the government might shoulder the first level of (reinsurance) risk, up to x%, in order to be a catalyst to get a private "super-fund" going to buy up loans that no one likes. But to ask the FHA to buy up the whole enchilada? Nah.
Sorry to be cynical, but some of these efforts look like a rush to get as much refinanced, via the FHA or otherwise, in order to prevent getting sued by the borrowers ... On the other hand, "the plan" does involve leaving some people who are paying and can pay with no relief. Again, without the statistics on the loans, whether that category is nearly zero in number, it's hard to know.
