Sunday, March 8, 2009

Oh, FRAP! Not again.

Let’s see if I have this straight. We’re in this economic mess due in no small part to lenders who made loans to people they shouldn’t have. The lenders made high loan-to-value loans such that when the market dipped, those borrowers would rather just lose the house than paying on a mortgage that was under water. As a result, the banks that made those loans lost, and continue to lose, so much money that the taxpayers had to come to their rescue or risk complete economic collapse. Are you with me so far?

So, hey, why should the party end? Let’s do it all again. At least that’s what Prince William County is doing. PWC has a new well-intentioned but badly implemented welfare program called the Foreclosure Rehabilitation Acquisition Program. It offers deferred loans for down payments so that borrowers need to come up with only 1.75% of the contract sale price to buy a foreclosed upon house. And you don’t qualify is you make more than $82,680.

Unfortunately, these loans are destined to fail just as those other high loan-to-value loans failed. All these programs do, at best, is to kick the can further down the road by making risky loans to people least able to afford them and least interested in making payments when times get tough.

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