THE MORTGAGE PROBLEM IS SOLVED AT LAST!

Allow me to tell you how to solve the mortgage crisis. Oh no! The government already figured it out. I guess I’m just a Johnny-come-lately!

The way to solve the mortgage problem is by printing money, what else?. The Fed has promised to buy several hundred billion dollars of Fannie- and Freddie-backed mortgage securities, increasing the size of its balance sheet to over $3 trillion – about 20% of GDP.

In anticipation of the Fed’s buying, the 10 largest banks increased their holdings of Fannie- and Freddie-backed mortgages by $128 billion, or 30% in the fourth quarter of 2008. The Fed’s buying has caused the price of this paper to increase substantially, resulting in “profits” for the big banks, whose CEOs were recently boasting of their return to profitability. Now we know how they have become profitable.

See if you can follow the risks inherent in this wonderful solution. The Treasury (U.S. taxpayers), hey! Tha’s us! guarantees Fannie-and Freddie-backed mortgages – many of which are in default. Then, the Fed backed by nothing more than a modern printing press promises to buy them. Insolvent banks buy them first, mark them up considerably, and sell them, at a profit, to the Fed. Isn’t that wonderul? Really! Now you can go back to work, if you can find a job. What? You don’t have a job? Oh well, that’s not our problem. We fix banks.

One big problem for anyone trying to “solve” the mortgage crisis: Most of the deadbeat borrowers have more than one mortgage. That’s how they got into trouble in the first place. About half of the seriously delinquent mortgages – loans were to speculators, who deserve to lose. Howver. OBAMA would like to mandate that those loans be “crammed down,” i.e., have second liens attached to the property.

Even if the government erases the first mortgages, the folks in these homes still can’t afford them. The problem isn’t the mortgages: The problem is the borrowers. They’re not creditworthy. And there’s nothing you can do to make them creditworthy. Auctioning the houses would at least make them affordable to anyone who has been careful with his savings and didn’t borrow more than he could afford during the bubble.

Of course, telling people they’re going to get what they deserve isn’t going to win an election. Not ever. So, no matter who is President, or who is in the dumbed-down Congress, you and I are going to end up paying for it. Remember, most Americans voted to do away with the balance of power when they voted a leftist, liberal Democrat backed by a leftist, liberal Democrat majority in Congress.