Representative Barney Frank had an idea. It was called H.R. 3915. For those home mortgages originated at the beginning of 2005 and mid 2007, lenders, and borrowers would agree on a federal refinancing plan. This plan would require lenders to write down their loan to no more than 85% of the current appraised value of the property.

Borrowers get an extra deal: the principle is reduced to market value and they get a low fixed monthly house payment. FHA would guarantee these loans up to $300 billion in Frank Refinancings. Mr. Frank is concerned that reliable borrowers may default on purpose just to get a piece of H.R. 3915. His answer to this dilemma was to make borrowers “certify” that they truly, are not going to do such a thing just to board the taxpayers’ gravy train. Right.

What does this bill boil down to? Mr. Frank wants to gather the troubled mortgages originated between 2005 and 2007, arbitrate them, and let the federal government bestow new and attractive loans upon them. Their mortgage balances would get a fake rate reduction.

In other words, say a borrower bought a house he could not actually afford and the lender turned their head from the lack of sufficient income. Mr. Borrower is struggling to keep up on his payments and can not get out of foreclosure because his property is now worth less than he owes. Frank wants to step in and reward Mr. Borrower with a new reduced rate loan and loan amount. But Frank is worried. What if borrowers, who are managing to keep up on their home loans, begin to miss payments so they get the same deal?

All H.R. 3915 will do is create an ugly caste system between responsible and irresponsible borrowers, cause taxpayers to pay for transferred bad debt, and create a legal and bureaucratic nightmare.

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