Stop the Insanity: Obama Proposes Deadbeat Loans

Obama wants to remove appraisals and tax returns from the mortgage underwriting process. Holy shit the wheels are off the bus.

What brainiac suggested Deadbeat Loans as the solution to help out defaulted borrowers who took advantage of Liar Loans? Only an idiot could seriously think this is a good idea.

Problem is the markets are cluttered with idiots. If this type of legislation passes the next bubble we be as dramatic as the final collapse and end of American Capitalism.

You cannot lend more money to people least likely to repay it.

Regardless of whether or not you close your eyes and hold your nose shit is still ugly and stinks.

Obama Plans Assistance for Rentals, Mortgage Refinancing

Feb. 1 (Bloomberg) — President Barack Obama announced a package of proposals designed to jolt the housing market, his latest effort to reignite the economy after four years of foreclosures and falling home prices.

“This housing crisis struck right at the heart of what it means to be middle class in America: our homes,” Obama said in a speech in the Washington suburb of Falls Church, Virginia. “We need to do everything in our power to repair the damage and make responsible families whole.”

The president said his plan would make it easier for homeowners to refinance their mortgages into current low interest rates, which are now below 4 percent. Borrowers, even those who owe more than their homes are worth, would be able to refinance into loans guaranteed by the Federal Housing Administration.

To pay for the program, Obama will ask Congress for a tax on financial companies with more than $50 billion in assets. Congress has refused to act on similar requests twice in the last two years.

“No more red tape, no more runaround from the banks,” Obama said. “A small fee on the largest financial institutions will make sure that it doesn’t add to the deficit.”

More Disclosure

In addition to the refinancing plan, Obama laid out actions that the administration will take without congressional approval. One is a Homeowners Bill of Rights, which will make it easier to shop for a loan by simplifying mortgage forms and improving disclosures on costs and fees. The Consumer Financial Protection Bureau last year began work to establish standards.

Obama also is promoting a pilot program to sell foreclosed properties in bulk to investors who maintain the homes as rentals. It will be limited to homes owned by Fannie Mae, the mortgage company under government conservatorship.

In a separate announcement, the Federal Housing Finance Agency, which is independent of the Obama administration, said it will auction blocks of properties. It invited real estate investors to apply to bid.

To qualify, investors must show financial wherewithal and experience and agree to keep “certain information” about the program confidential. Investors may apply at

Investment in Foreclosures

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” FHFA Acting Director Edward J. DeMarco said today in a press release.

Obama spoke in Virginia, a state that is expected to be an important election battleground. The economy will be the main issue as Obama seeks a second term in the November election and the president indirectly sought to draw a contrast on the housing issue with the leading candidate for the Republican nomination, Mitt Romney.

The former Massachusetts governor last year told the Las Vegas Review-Journal in Nevada that he wouldn’t intervene.

“Let it run its course and hit the bottom,” Romney said in an interview published Oct. 17. “Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up.”

Obama today said “it is wrong for anyone to suggest that the only option for struggling responsible homeowners is to sit and wait for the housing market to hit bottom.”

Dropping Values

Residential real estate values have dropped 33 percent from their July 2006 peak and have left about 11 million households underwater, or owing more on their homes than the properties are worth. Earlier this month, the Federal Reserve Board called the housing market “depressed.”

Today’s announcement adds to a mosaic of existing programs aimed at boosting the housing market, which is entering its fourth year of weak sales and high foreclosures.

House Speaker John Boehner criticized the president’s latest proposal as more of the same.

“How many times have we done this?” Boehner said. “I don’t know why anyone would think that this next idea is going to work.”

Previous efforts have done nothing but “delay the clearing of the market,” the Ohio Republican said.


The streamlined refinancing, if it wins funding from Congress, would make new mortgages less expensive and limit paperwork. Appraisals and tax returns would not be required, according to the White House fact sheet.

“A lender need only confirm that the borrower is employed,” according to the document. Unemployed borrowers might qualify for the loans if they meet other credit requirements.

The proposal could save borrowers an average of $3,000 a year, Obama said. The program is open only to “responsible” homeowners current on their payments and with no more than one delinquency in the previous six months.

“This plan, like the other actions we’ve taken, will not help the neighbors down the street who bought a house they couldn’t afford, then walked away and left a foreclosed home behind,” Obama said. “It will not help those who bought multiple homes just to speculate and make a quick buck.”

Loan Eligibility

Loan applicants must have a credit score of 580 or higher to be eligible and occupy the property they want to finance.

Loans must not exceed FHA lending limits, which range from $271,050 to $729,750, depending on the location of the purchase property. Borrowers who are underwater, or owe more than their home is worth, would be eligible to apply for the loans if they met other requirements.

The FHA, created in 1934 with the goal of expanding homeownership for under-served communities, charges lenders and borrowers a fee in exchange for a guarantee that mortgages will be paid. The agency has grown rapidly since the 2008 subprime lending collapse and now insures more than a third of U.S. mortgages. At the same time, the agency’s cash reserves hit a record low of $2.6 billion last year.

Since the 2008 subprime lending collapse, the FHA has paid $37 billion in claims related to defaulted mortgages, according to an independent audit released in November.

In a separate announcement last week, Obama expanded the Home Affordable Modification Program, or HAMP, relaxing rules on loan modifications and tripling incentives to banks to help homeowners lower their interest rates and shed mortgage debt.

The revision, which would be funded with about $20 billion in unobligated TARP money, would pay Fannie Mae and Freddie Mac to forgive debt on devalued homes. The companies, which were taken under government conservatorship in 2008 amid massive losses, so far have refused to reduce mortgage debt for distressed borrowers.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert

To contact the editor responsible for this story: Maura Reynolds at mreynolds34

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