Yet Another Inefficient Government Run Program

From the March 26, 2010 Agora Financial's 5 Min Forecast.

Let's see, we've got at least nine government run or government-related agencies that are broke or close to it.  So here is some info about the terrible program of putting taxpayers on the hook for mortgages that irresponsible programs (Community Reinvestment Act) allowed for unqualified buyers.  This fact has been conveniently omitted by the mainstream press.


The agencies are:

Fannie Mae, Freddie Mac, FDIC, Social Security, AMTRAK, Cash for Clunkers, Post Office, Medicare, Medicade---and that doesn't even count the new taxes that must be implemented so that the new health bill can be paid for.

Unfortunately, I don't see a light at the end of the spending/inefficiency tunnel.

My emphasis is in RED in the article.

A-4 Driver

  For weeks, the question has lingered: Now that the Fed is following through on its promise to stop buying up shaky mortgage-backed securities, what will the powers that be do to prop up the housing market next?
This morning, we have our answer, direct from the White House. And rest assured, you’re on the hook for some of it. The details in a moment… First, let’s step back and take stock of the government’s efforts to date.

  A report just out from the Office of the Comptroller of the Currency delivers this startling statistic: 51.5% of delinquent borrowers who’ve gotten loan modifications defaulted again after nine months. Ouch.

  Another new report, this one from the inspector general of the TARP program, confirms what we’ve previously documented: The Home Affordable Modification Program (HAMP) is a joke.
“A year into the program, although more than a million trial modifications have been initiated, the number of permanent modifications thus far, 168,708, has been, even according to Treasury, ‘disappointing,’” says the report. “The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway.”
A big reason? Most of the modification agreements don’t reduce the borrower’s principal. In fact, in many cases, the principal grows. (Nifty way to shore up a bank’s balance sheet, eh?) The report notes that "HAMP allows principal reduction, but it is not typically implemented in practice,” and until it is, the incidence of “strategic default” will likely grow.

  So into this breach steps the White House with its latest and greatest plan: Having failed to help underwater homeowners who are delinquent, it now proposes to help underwater homeowners who are still current with their payments. The highlights…

• Borrowers who’ve lost their jobs can make sharply reduced payments -- or in some cases, no payments at all -- for up to six months
• Banks will now be given an incentive to reduce principal… courtesy of you, the taxpayer: The government will use $14 billion of TARP money to cover their losses. A chunk of this money will be used to help clear home equity loans and HELOCs. In a foreclosure, those are second in line behind the primary lien holder, and, on an underwater home, are frequently worthless
• Borrowers taking advantage of the program would refinance into a loan backed by the Federal Housing Administration. So the banks might book a loss (covered at least in part by the TARP money), but they’ll shuffle the risk of foreclosure onto the FHA -- which faces rising losses on the loans it backs already.

All of this should work out for homeowners and taxpayers at least as well as HAMP, if not better. But if it cushions the fall in housing prices, well… mission accomplished.
Except for one fly in the ointment: If mortgage rates start to rise, all bets are off.

  This brings us to a phenomenon that emerged over the last 48 hours. We call it “the Bernanke sandwich” -- a reaffirmation of loose monetary policy, sandwiched by two lousy Treasury auctions.

Let’s walk through the timeline…

• Wednesday, 1 p.m.: Treasury auctions $42 billion in 5-year notes. Demand is weak
• Thursday, 10 a.m.: Ben Bernanke tells Congress, “The economy continues to require the support of accommodative monetary policies”
• Thursday, 1 p.m.: Treasury auctions $32 billion in 7-year notes. Demand is weak.

Foreign investors in particular failed to show up. Put it all together, and the yield on a 10-year note is up to 3.9% now -- the highest since last June.
Given the rough correlation between the 10-year note and mortgage rates, yesterday was probably your last chance to snag a 30-year fixed under 5%. Sorry ’bout that.
Plenty more where this came from. Treasury is expected to auction $1.6 trillion in new debt this year. That’s in addition to existing debt that’s coming due and needs to be rolled over.