Pretty much whenever Congress gets involved.

Not that I’m cynical, mind you.  Just experienced.

I guess the collapse of the subprime housing bubble must have been really lucrative for someone in high places.  Else why would Congress be setting up Round 2?  From the Wall Street Journal we learn that Fannie Mae and Freddy Mac under the leadership of the Obama administration  are going to extend help to homeowners to refinance even though they owe up to 125% of what their home is worth.

To be eligible, borrowers must be current on their mortgages and have loans owned or backed by government-controlled mortgage companies Fannie Mae and Freddie Mac.

Secretary of Housing and Urban Development Shaun Donovan said the higher limits “will make a critical difference in our ability to help many more Americans…to stay in their homes.”

Nearly 30% of homeowners with mortgages owe more than their homes are worth, according to Moody’s Economy.com.

Wednesday’s move is the latest indication that the refinance program, announced in March, has fallen short of expectations. In mid-June, the administration said 20,000 borrowers had refinanced under the program. The administration had previously said that the plan could help four million to five million borrowers who owed 80% to 105% of their home’s value.

As recently as late April, Mr. Donovan had rejected the idea of expanding the program to borrowers who were more deeply underwater.

The 105% plan was basically worthless to Southern California because property values have dropped over 50% since the peak in 2005.  The 125% is largely worthless for the same reason.  But in an economic climate such that property values are likely to continue to fall and unemployment likely to rise the government plan is basically a way to siphon money to loan officers and ultimately to other shadowy predators further up the feeding chain.  No one is suggesting, of course, that the chain leads all the way to Congress like it did back in halcyon days before the bubble burst.  No.  Uh-uh.  And don’t nobody go check.

Don’t look here either.

Nor here.

UPDATE: The problem here is the same one that the previous program had.  The success of the program depends on the loan being bought by a private investor.  Investors are in the game to earn a return on their capital.  Usually they are willing to accept fairly high risk investments if the return in likely to be substantially larger than average.

This program proposes to make refinance loans available to property owners whose properties are worth less than the refinance amount.  So in this case the investor is being asked to loan somebody $500,000 on a property worth $400,000 using the property itself as collateral for the loan.  Yes, it is being done through Fannie Mae and Freddy Mac, but they just re-sell the loan to private investors and guarantee the loan they sold.

Now ask yourself: would you be willing to loan some poor shlub who’s underwater on his mortgage $500,000 on a property worth $400,000?  With property values still falling and uneployment rising (oddly, only employed people seem to pay mortgages)?  Even if it is guaranteed by the government (that is, by you and me, my fellow taxpayer)?

Probably that’s why only one of these was done last year in the whole Western United States when the refinance limit was only 105% over value.

Go figure.

From the Florida Business Journal we learn that Fanne Mae and Freddy Mac are too big to fail and are being kept on life support on the taxpayer’s dime.