Not Learning From The Past - Same Mistakes

larger mortgage refinanceThe Treasury announced, Wednesday, their new plan to help homeowners who are drowning in their existing loans. Let me remind you that one of the big reasons we are in this housing crisis, was from the government setting initiatives for banks to "loosely" approve most consumers to take out a loan for a house. Without much collateral, many could take out a rather substantial loan, with barely putting anything down.

Now, the government is, very dangerously, flirting with that same principal by increasing the Loan to Value (LTV) ratio that consumers can take out as a refinance for their home. For those that have loans backed by Freddie and Fannie, will now be eligible to borrow up to 125% of the value of their home. Prior to this, the maximum amount was 105%, but the Treasury announced Wednesday, that they are increasing the LTV amount by an additional 20%.

The hopes of the increase, is for that those who have suffered the large drop in housing prices, will be able to afford to refinance their house. However, once again we offering up leverage to many that will probably abuse it. Sure, there are honest, legitimate cases out there that would benefit from the change, however as is usually the case, many will take advantage of it. This will allow others to dig themselves deeper into debt, and possibly risk losing even more equity in their house from falling values.

Sure, once again this may look to fix things in the very short term, however, it may be just one more cloud in this perfect storm forming. Happy Trading.

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