I wouldn’t get to worked up about the 5 year freeze. For the few that apply to the criteria, many will probably decide to walk away anyways. For those who don’t walk away, many won’t be able to keep their finances together anyway. And for those who can keep their finances together, they likely won’t be able to refi after the 5 years and will end up in a short sale situation anyway.

Lastly, if you’re waiting for the chance to buy after the market returns to reasonable values, don’t worry about the freeze doing anything. The market will correct even if a small percentage of these homes don’t go up for sale.

What the Mozilos of the world need most is more credit crack capitalization so they have more cheap $$ to peddle on the streets. However, investors the world over have seen the hideous risks of derivatives made of derivatives for what they are. They aren’t going to provide the mortgage originators the crack they need. And having government undermine contract law (which may well eventually be found unconstitutional) with this 5-year freeze places much more than just mortgage lending investments at risk in the US. The falling dollar is brutal enough already in the international arena–add to that a flight from US investments due to an even bigger crisis of confidence induced by the complete lack of respect for contracts demonstrated by this poorly advised government meddling, and the picture gets much darker and potentially very quickly.

Fannie and Freddie still have to get their capital from somewhere, cap increases notwithstanding. Freddie just last week decided to issue $6Bn in new preferred stock while cutting its dividend in half (that’s some serious dilution of the current stock capitalization, folks) at the same time they are keeping $4.3Bn in already-realized hedge-fund losses off the books using the same sort of accounting Tomfoolery that Enron was using just before it collapsed. (see [url]http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahoxGPj68WN0[/url] ) If Freddie were to bring those losses onto their books, they’d now be well below their federally-required core cap floor. So [i]who[/i] is going to be swimming in to buy this new dilution of Freddie’s already arguably worthless stock?

Even without the full wave of subprime foreclosures, the capitalization base needed to support this bubble still isn’t there. And let’s not fool ourselves…a subprime borrower with a sub-660 FICO score is just that due to a history of prior financial misbehavior. How many of those “saves” do we expect to last even a year given the basis of those low FICOs?? Feed these people more rope, and they’ll just make a better noose for themselves.

I’d think Hillary would want to see this thing over with before she moves back in to 1600 Penn Ave. This will almost certainly ensure that whoever wins will get to wallow in this mess for those defining first years in office.

Bob