When you’ve put taxpayers on the hook to back up all the bad debt in our country, there is no incentive to be responsible in mortgage lending.
In their latest effort to artificially inflate the price of housing the government has approved new regulations that allow borrowers who are refinancing their homes to borrow up to 125% of the value of the home.
Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.
The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.
Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth.
If housing prices continue to decline as expected, there will be a big incentive for the borrowers to walk away from the loans. Think about it: they are underwater on the day they sign the loan papers. Knowing that prices are being kept artificially high, there is little incentive for smart, responsible investors to buy.
I wonder when people are going to realize that you don’t fix a problem by doing the same things that created the problem in the first place. You don’t get over an addiction to heroin by taking more heroin. You don’t get a healthy housing market by continuing to perpetuate the same fraud that caused it to collapse in the first place just so that banks can make more money.