are now going to be offered by Fannie Mae and Freddie Mac to "prevent foreclosures." This is beyond atrocious, beyond stupid and simply fraudulent. The government refuses to accept normal market forces and instead will squander every dollar it can of other people's money on worthless programs.
The predictable consequences of this program, if it is actually utilized, are numerous:
The taxpayers will be raped and pillaged for billions of dollars
The refinanced loans will be re-defaulted on at rates of 30-70%
The banks, mortgage companies and Wall Street CEOs will find a way to dump all their toxic mortgages into Fannie and Freddie's laps and walk away unscathed with piles of free taxpayer money and "consulting" and "servicing" and "packaging" and "miscellaneous" fees
The housing crisis will be prolonged and a bottom in real estate will take 10-20 years instead of 5
The secular stock bear market we are in will last an extra 10 years
People in many states like California will be tricked into turning a non-recourse loan into a recourse loan and will become debt slaves for life with no hope of ever paying off their mortgage (unless they win the lottery)
Government apparatchiks are the worst businessmen on the planet, due to incompetence and/or being lackeys who steal money for their corporate masters.
Every single mistake from the last economic depression is being repeated and the only difference is that this time will be worse. I just hope unemployment can stay below 30% this time around.
No rational bank or mortgage lender would do a 125% loan to value on a home because it makes no financial sense. Only government (and the lobbyists paid to discover new ways to loot the US Treasury) could conceive of a plan so stupid and/or brilliant (depending on whether you're a taxpayer or lobbyist) that it will hemorrhage money and be doomed to fail under the best of circumstances.
The good news is that the program will likely be run poorly and inefficiently. Many homedebtors (since the people who need this program do not own anything but the debt on their dwellings) will refuse to participate either due to the red tape required to get approved or because they smell a rat.
Oh well, at least everyone who still has a job can look forward to markedly increased taxes to pay for such harebrained scams (er, I mean schemes)...