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Housing Bubble Blame Game Heats Up

[Jan 4, 2010.]


Who caused the housing crisis? That seems to be the question of the week as Congressman, Fed Chairman Ben Bernanke, and The New York Times weigh in on the matter with sharp words all around.

The question behind that question, for homeowners looking to refinance, is:

How will the results of the housing crisis blame game affect refinancing possibilities in 2010 and beyond?

Congress Says Low Interest Rate Policy of Fed "Abysmal Failure"

Senator Christopher Dodd of Connecticut made news the other day when he referred to the low interest rate policies of the Federal Reserve as an "abysmal failure." This strong phrase was uttered as a direct rebuke to the Chairman of the Federal Reserve, Ben Bernanke, who is up before Congress for re-confirmation to his post and facing some pretty serious grilling.

Throughout the first decade of the 21st century, the Federal Reserve pursued a monetary policy that has led to persistently low mortgage rates. Now, we may be in a situation where the entire housing market is actually dependent upon low mortgage rates.

Bernanke Strikes Back, Arguing That Congress Failed to Regulate

Bernanke offered the counter-argument that it is not the low mortgage rate policies of the Federal Reserve that are primarily to blame for the mortgage meltdown, but the lack of regulation by Congress of problematic mortgage products.

Bernanke pointed to recent consumer finance protection legislation as an example of what effective mortgage regulation could have looked like. The new consumer finance protection legislation is aimed to prevent credit card companies from continuing to help unwise consumers stay in debt for life.

Bernanke implied in his testimony that some similar effort to rein in "predatory lending" in the mortgage industry would have been the best medicine for preventing the housing crisis.

New York Times Article Calls Modification Policy a Failure

The so-called "Gray Lady" has historically been quite friendly to liberal causes, but a recent article about problems with federal loan modification programs does not conform to that pattern. In fact, the article includes extensive talk about the government help actually hurting the housing market.

The best statistic in the article: of 759,000 "trial" loan modifications, only some 31,000 have been finalized. Meanwhile, foreclosures are expected to be more plentiful in 2010 than they were in 2009.

What All This Means to Homeowners Looking to Refinance

The blame game may seem far removed from the concerns of the average homeowner who is looking to refinance. But it's not.

If blame leads to new mortgage regulations, every mortgage holder may feel the effects.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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