Yet another gov’t intervention in housing sets up perverse incentives
posted at 11:57 am on March 28, 2013 by Ed Morrissey
It’s almost as though they can’t help themselves. At least this time the Washington Post points out the obvious: Federal housing regulators took a significant step on Wednesday toward helping borrowers who are falling behind on their mortgage payments — a move that will help more people but also introduce new risks that some homeowners could deliberately stop paying in order to become eligible for assistance.
The Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, announced that borrowers who are more than 90 days late on their mortgages will become automatically eligible for a modification to the terms of the home loan. The goal is to reduce monthly payments.
In the past, to be eligible for a mortgage modification, borrowers had to provide documentation they had a financial hardship. They will no longer be required to do so — though providing such documentation will make borrowers eligible for more substantial monthly savings.
So you can be wealthy and have no trouble paying your Fannie/Freddie-backed loan, but just want to reduce your interest rate and/or principal. Instead of going through the cost of refinancing, just skip three payments and voila! Uncle Sam bigfoots your lender and you get a lower monthly payment, apparently at no cost.
Gee … what could possibly go wrong here?