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It's A Deal

By Tom Granahan, IDD Magazine

July 2, 2009

Desperate Is As Desperate Does

The calendar says July 4 is right around the corner, but for some of us it feels more like Groundhog Day. The latest government plan to artificially rescue the housing market is a doozy, and actually makes some of the laughable schemes employed at the height of the crime spree that was the mortgage-lending bubble seem almost conservative.

By allowing homeowners to refi mortgages with a 125% loan-to-value ratio, the government “can bring relief to more struggling homeowners more quickly,” Treasury Secretary Timothy Geithner says. That may depend on what your definition of “relief” is.

My first thought after hearing about the new plan was of a story in the Wall Street Journal earlier this week about homeowners looking to sell in California. In a nutshell, it went like this: If I can’t get my price now, I’ll ride it out and rent it for a year, then sell when the market recovers.

Implied, of course, is that the pullback in home prices is simply a panic-induced phenomenon that inevitably has to right itself, as opposed to a rational rebalancing of the housing market based on antiquated notions of, say, people having enough money to pay for the house. Or, for that matter, having a job at all. 

And I’m still not sure what the impetus is for a borrower to repay a debt that’s even more underwater, regardless of whether they have the privilege of paying a lower rate.

While this latest effort seems a far better idea than the nationalization of the mortgage lending industry in which the government would guarantee mortgage rates of 4.5% (remember that?), it’s all relative. The further erosion of lending standards by Fannie and Freddie -– the recipients of nearly $100 billion from the U.S. government and key players in getting us where we are -– doesn’t ultimately help solve the housing crunch. Letting the market sort it out does.

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Tom Granahan

Tom Granahan is the Editor of IDD. He has more than 15 years of financial-journalism experience, having written about the stock market for Dow Jones Newswires and The Wall Street Journal for several years. He also supervised the Newswires' U.S. bureaus, and was the founding editor of Dow Jones Market Talk, which some consider to be one of the earliest forms of financial-news blogging. He graduated with a BA in journalism from Temple University in his hometown of Philadelphia.

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