Archived Story

Mortgage industry still filled with pitfalls

Published 12:00am Sunday, March 17, 2013

Six years after the collapse of the housing bubble inflated by the political treachery of then-Sen. Chris Dodd and others, 27.5 percent of U.S. home mortgages still remain under water. That’s almost 14 million homeowners with more mortgage debt than equity, according to the Zillow Negative Equity Report. …

Where they got in trouble was believing prices would rise forever, freeing them to cash out their equity periodically to buy expensive consumer goods, pay for lavish vacations, finance grand home improvements or simply afford lifestyles their incomes couldn’t support.

During the housing boom, Americans cashed out more than $1 trillion in equity by refinancing or through second mortgages or lines of credit, all with variable interest rates below those of traditional fixed-rate instruments. But when the bubble burst, they were submerged by rapidly falling prices and rising interest rates. And the rest, including trillions in lost household wealth and 5 million-plus foreclosures, is Chris Dodd’s legacy.

Did Americans learn anything about reckless borrowing? CNBC reports a $7.2 billion (19 percent) surge in new equity lines of credit in the last year.

That’s a far cry from the $28 billion likewise financed in 2006, and industry observers say, based on anecdotes, this new equity borrowing is funding home improvements, college tuition and other worthwhile expenses.

Maybe so, but that doesn’t mean the new loans are risk-free to borrowers or taxpayers. It’s not as if the mortgage and housing crises have passed. …

Notwithstanding the copious grandstanding by politicians and government bureaucrats, nothing fundamental has changed since the bubble burst.

And almost every new mortgage continues to come with the implied backing of taxpayers because the Obama administration actually has expanded the role of Fannie and Freddie in housing finance, even as they are stuck with more than $5 trillion in essentially worthless mortgage-backed securities.

So almost every new dollar borrowed presents a new risk for taxpayers. …

The Republican American, Waterbury, Conn.

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