Washington has already come up with some unusual and at times confusing legislation during this enduring housing collapse to correct perceived deficiencies. HVCC – the Home Valuation Code of Conduct – addressing the alleged appraisal problems of the recent past is one. The new RESPA – Real Estate Settlement and Procedures Act – is another that has led to many complaints and questions from the mortgage and real estate industries and puzzles the consumer as well. More of the same could be forthcoming.
House Republicans presented a surprise rider at the end of an FHA-related debate the other day that would prohibit mortgage borrowers who engineer a strategic default while still able to make payments from getting any future government-sponsored loans. Basically meaning FHA, VA, Fannie Mae and Freddie Mac. This proposal passed on a voice vote without any dissent probably because everybody was in a hurry to exit town for the weekend.
What is bothersome about this idea is that it would single out mortgage recipients for supposedly being morally wrong and for that they shouldn’t be allowed to enjoy any government benefits. Businesses, including mortgage lenders, constantly pull off strategic defaults when it’s in their best economic interest and no one waves a red flag saying it’s misguided. Some of the biggest mortgage banks just got bailed out, for starters. They also find tax breaks and other government support very useful. To be fair about this, companies then should face the same restrictions upon strategic default as homeowners do.
Wall Street’s greasy fingerprints appear to be all over this strategic mortgage default provision. They are seemingly becoming more common as the real estate meltdown lingers on and the home loan banking interests want to send a warning signal to homeowners who are toying with the idea. Really bad things will happen should they do it.
But the whole thing reeks of a double standard. What’s good for a company should go for an underwater homeowner as well. Fortunately the idea is just taking its first baby steps and once people read the details and find out what it really means it may not go very far. Enforcement alone would be a chore. Besides, it also needs to pass the Senate.