Mortgage Madness

Lawmakers say they want to speed FAST, FAST, FAST RELIEF to homeowners with mortgage woes. But the leading remedy on the Hill, the Frank-Dodd FHA Refinance Plan (H.R. 5830), will take many months before it has any effect at all. Moreover, it’s the wrong prescription.

Though not as bad as some earlier proposals, the Frank-Dodd proposal still remains “essentially a government buyout of problem mortgages disguised as a refinancing plan,” Heritage Foundation expert David John writes in a May 6 research paper.

And anyone expecting quick relief from the bill will be quickly disappointed. It will take a long, long time to refinance the 1- to 2-million loans the bill’s supporters envision “fixing.” Though they talk about refinancing loans in bulk, John notes, bulk refinancing is not now an available option. Congress would first need to change the law to allow it, and then the financial industry would have to develop new practices so it could do bulk re-fi’s without making the housing market even more unstable.

The bill’s mass expansion of the federal housing bureaucracy would cause even further delay. For Frank-Dodd to work, Congress will have to pass another bill funding hundreds of new federal workers needed to administer the bill. Once that’s done, it’ll take even more time to recruit and hire the workers, and then train them in how to implement the new law.

And one more thing: Taxpayers are still left holding the bag if homeowners can’t pay the refinanced mortgage. “If the homeowner subsequently walked away from the new loan, and if the FHA lacked the resources to back the loan, then the taxpayers would cover any losses,” John writes.

Some fix. To read more of John’s research paper, click here. For more insights into the housing crisis and what Congress should and shouldn’t do about it, click here.