Over the last few years, the housing market tanked and caught all of us by surprise.  You may recall in past issues that I've been warning you of a "double dip" because of all the "Option-A" mortgages coming due.

 

Option-A mortgages are those that have adjustable rates and you don't even have to pay all of the interest.  On a 5 percent loan, you may have been able to get away with only paying 1 percent.  That means that the loan balance increases each year because you aren't even paying all the interest.

 

Well, take that program (which was about as big as the sub-prime mess - you remember that) and mix in plummeting housing prices. Guess what you get?  That's right, a bunch of homes that have mortgage balances exceeding the value of the home.

 

And now it's time for those loans to balloon. Those loans are all re-setting right now, which means in many cases, you have to re-qualify.  You can imagine the fun you would have trying to re-qualify for a loan that is greater than the value of your home!

 

It's gotten so bad out there that at this point, over 25 percent of homes with a mortgage are underwater (home value being less than the loan balance) Learn more by clicking here. 

 

In weeks past, I've shared with you how there are currently approximately 5 million homes that still need to be foreclosed on.  When you add all of this to the already ugly housing market, well, you can expect home prices to continue their downward fall.

 

Meanwhile, out of the blue, President Obama is talking about dismantling Fannie Mae and Freddie Mac.  (Read more on this by clicking here.)

 

Personally, I'm all for getting the Government out of our way. And the last time I checked, I couldn't find anything in the Constitution giving the Federal Government the power to maintain a mortgage system.

 

However, you also need to understand that the impact of eliminating Fannie and Freddie will ultimately lead to higher interest rates, benefiting the big banks and hurting the homebuyer.

 

The timing could have been a whole lot better.  Do we really want to hit an already devastated housing market with higher interest rates?  Is this really the best time to dismantle the current system?

 

Perhaps the better question is:  Does anyone in Washington know anything about economics?