No, the headline isn’t a typo. From today’s Wall Street Journal- Bailout ideas just keep getting dumber. Here’s a gem from Fannie Mae: [Thanks John!]
Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn’t worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.
"We’re saying to the consumer, ‘You’re not trapped any more,’" said Jeff Hayward, a senior vice president at Fannie.
The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.
Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.
