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Maryland's Mortgage Unaffordability Plan

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April 03, 2008 – Comments (0)

This is a great piece of work in Maryland, and shows just what can happen when well-intentioned but clueless and cowardly lawmakers suddenly try to fix an unfixable problem: They make it worse.

Can't wait to see the unintended consequences.

Stuff like "prohibiting prepayment penalties" might sound great, and I'd never advise anyone to take a mortgage that had prepayment penalties. But do these knucklehead legislators realize that the one of the main reasons mortgages were so "affordable" for low-earners all those years in Maryland  was because prepayment penalties got the deal done? The rates were low because there was a financial disincentive for borrowers to pay up and deprive the mortgage holders of the cash stream. Take away those financial disincentives and lenders need to make their money the old-fashioned way, and that means mortgage rates go up. Because Maryland's politicians haven't actually helped Maryland citizens earn more money, this means they will be able to afford less home, and that means home prices drop even more, and you'll get more walkaways and foreclosures...

That's a wash. Probably an OK solution, but likely to do things these knee-jerk politicians haven't the brains or courage to consider. But, it gets much worse.

Take this is bleeding-heart idiocy: "extending the foreclosure timetable from 15 to 150 days." So now those who signed on for more mortgage than they are now willing to pay are rewarded with free rent for a full 5 months? The lenders -- the people who actually own the property, remember -- can't do anything to get non-payers out of premesis for nearly half a year?

Memo to Maryland: You just guaranteed everyone in your state higher mortgage payments and reduced availability. And you're retarding the market mechanism by which this entire problem can be reset: letting housing reprice quickly and efficiently.

Think house prices are dropping like rocks in Maryland? You ain't seen nothin' yet.

Of course, the real right thing to do would have been to help the good people of Maryland to understand back from 2001-2007 that these crummy loans and inflating home prices weren't in their best interests. But back then, politicians were too busy basking in the bubble, confusing a speculative Ponzi scheme with actual economic success. And it was far easier to sit back and let everyone pretend to be rich on borrowed money than consider the unpleasant reality that someday, those debts would be called, and they wouldn't all get paid.

Sj

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