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The Biz Roundup March 8

The folks at the GOP come up with a new bank bailout plan: shoot a hole in the bottom of the boat.

“I think that they’ve got to close some big banks,” Sen. Richard C. Shelby (Ala.), the ranking Republican on the Senate banking committee, said on ABC.

“I don’t want to nationalize them. I think we need to close them,” he added. “If they’re dead, they ought to be buried. We bury the small banks; we’ve got to bury some big ones and send a strong message to the market.”

On “Fox News Sunday,” Sen. John McCain (R-Ariz.) agreed.

“I don’t think they made the hard decision, and that is to let these banks fail, to let General Motors go into bankruptcy and reemerge and reorganize with new contracts with labor and others,” McCain said. “I don’t think they’ve made the tough decisions. Some of these banks have to fail.”

(“GOP Leaders Criticize Bank, Budget Plans,” Washington Post, March 9) Well, you can’t accuse the Republicans of not having new ideas. “Let the economy go off the cliff while we sit in the back seat and watch it happen” is certainly an idea few have tried in the past.

Stupid is as stupid does. And no-one does it better than the witless wonders in Washington.

More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week.

The overall default rate on FHA loans is accelerating rapidly as well but not as dramatically as that of instant defaults.

The agency’s share of the mortgage market is up from 2 percent three years ago to nearly a third of the mortgages now made, its highest level in at least two decades, according to Inside Mortgage Finance, an industry trade publication. The FHA does not lend money directly. It provides mortgage insurance for borrowers working with FHA-approved lenders and uses the premiums to cover its losses. If the premiums are not enough, taxpayers could be on the hook.

At the same time, Congress has substantially increased the amount a homeowner can borrow on an FHA loan in pricey areas, thrusting the agency into markets it was previously shut out of, such as California, where plunging home prices have made people more vulnerable to foreclosure. Moreover, lawmakers last year put the FHA in charge of a program created to address the roots of the financial crisis by helping delinquent borrowers refinance into new mortgages.

(“The Next Hit: Quick Defaults,” Washington Post, March 8) Imagine that. Borrowers that default on their mortgage before making any payments. Now, seriously, I’m a generous guy and I think we should do what we can to keep people in their homes, but folks who can’t even make the first or second payment, well, they need to get out of the home-owning club. Who’s the idiot giving these folks loans? Who thought it would be a good idea to insure these loans? You know, if we can’t get off the dumb mortgages to nonpayers kick, we’re just going to have to sit back and enjoy a nice long refreshing recession for a much longer time than we planned.

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