Wednesday, December 03, 2008

More Bagholderism

Last week I linked to a bagholder story at Businessweek which discussed how FHA has become the new dumping ground for subprime mortgages. Who'll be on the hook for the losses on this second round of lending insanity?

You, the taxpayer, will. And I will. And our kids.

And there's further corroborating evidence in this article:

Santa Cruz Sentinel: Fannie/Freddie Announce 2009 Limits

It's an article by Peter Boutell, an apparent mortgage professional, in which he laments the fact that Fannie and Freddie's recently-released 2009 mortgage guidelines won't provide "...some much-needed relief for refinancing homeowners and homebuyers."

I'll tell you who needs relief: Responsible spenders and savers. Because we're the ones who're footing the bill for this nation overflowing with financial morons.

But I ask you, Dear Reader, to get a load of this taxpayer-backed insanity:

Stay tuned to see if Freddie and Fannie will be further tightening their underwriting guidelines. There have been rumors that they will not allow a borrower's debt-to-income ratio DTI to exceed 45 percent, even for loan amounts under $417,000. That change would drive even more business to FHA loans, where DTIs up to 55 percent are allowed. Freddie and Fannie have been allowing DTIs up to 60 percent for loan amounts under $417,000.

Debt-to-income ratios of 45 and 55 percent? Seriously?

Seems to me that the U.S. government has made it abundantly clear that housing prices must be propped up at all costs. Otherwise, the Citibanks and other megabanks of the world (and by extension, our financial system) are in deep, deep doo-doo. (Well, they already are, but you know what Grandpa always said about how stuff "...could always be worse.")

If you folks aren't big-picture nervous yet, you should be.


— Posted by Michael @ 9:07 AM


I heard that mortgage applications doubled last week from the week before. I suspect that most of these are refi's and that a lot of those will include cash out refi's. More debt on the way!


"Freddie and Fannie have been allowing DTIs up to 60 percent for loan amounts under $417,000."

Um. If I think about that too much, brain go splodey, and I don't know if I want that to happen.



Sixty percent.

Six tenths.

Six dollars out of every ten.

It's gotta be gross, because that's the way things are done. But yikes... That doesn't leave a whole lot to live on.



What really makes it a zinger is that they're talking about 60 percent of GROSS income.

That means before taxes.

I say again: We're doomed.


I totally agree with you -- the people who need support are people like us who save, live within or below our means, pay off credit cards monthly, etc.

I cannot figure out where interest rates are seems like inflation has got to come in light of this reckless government spending, but then I hear about deflation and the Fed possibly lowering rates again. So my cash in the bank earns less money every month.

Also, (rant continues) the whole "too big to fail" stuff makes me want to puke (can you tell I get a little excited about this??!!). The medicine that this country REALLY needs is just too bitter and painful, I think, so it's being avoided at any cost. I don't have kids, but I feel sorry for the next few generations trying to pay this off. Higher taxes can't be too far in the future.


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