Monday, June 6, 2011

Should FEDs get more involved to help housing?

Good God, I hope not.

According to a Moody's analyst, the Fed Govt should do more to help underwater borrowers. Read the article here. The rationale employed is that the government can help offer more refinance solutions to involve principle reduction in order to prevent people from strategically defaulting.

This quest by some in Washington to "keep borrowers in their home at all cost" is killing the market and the economy. "Too Big To Fail" has been waiting to make it's debut on the homeowner front. Think about it... the bail out failed, the stimulus failed, loan mods (HAMP) failed... so is it that government just had the formula wrong? Did they just bail out the wrong side (industry instead of consumers)? I think not. Rather, it was their involvement to begin with that created false hope and an elongated (and inevitable) homeowner default. It is the Federal policies that gave lenders an alternative to negotiating settlements with the borrowers.

Left to their own, lenders and borrowers have enough mutual interest in working out a solution, including principle reduction, and if it does not work, there is always a short sale. My point is simple, the Fed Govt should divest itself and allow the market to work its way toward recovery. It will be faster and cheaper in the end.

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