Wednesday, July 23, 2008

New Housing Bill Nears Law

Yahoo reports today that President Bush has agreed to sign the housing bill that is moving through Congress. From what I read, the bill does the following things:
- Allows FHA, FreddieMac and FannieMae to guarantee more mortgages, including
- The guaranteed refianance of $300 billion in mortgages

Starting with the first point, one of the problems that got us into this mess is that banks were writing unsound loans knowing they could be sold to the mortgage giant GSE's. Recently the limits were raised on the mortgages from $417,000 to in the $700,000's. Ironically the FDIC has not raised the limits of insured deposits

The second part is the refinance clause. Housing pundits like to believe that allowing someone who is upside down on a home to refinance will fix the issue. With rising gas and utility costs, many of the homes in which people are upside down might not be desirable now. Note that this will also not stop the growing number of 'mortgage walkers', or those who only bought for appreciation purposes or some other reason who won't pay for an asset that has little chance to bring an immediate return.

Mortgage walkers - keep an eye on this in the media as I believe this term will become synonomus with 2009.

I'm disappointed about this housing bill because it does nothing to fix the real problem (price/income ratio) and everything to hopelessly delay the inevitable (price/income ratio back to historical norms).

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