The Great Mortgage Bailout

Yep, there's another bailout in the works, and this time it's for irresponsible home buyers:

President Obama today unveiled a $75 billion foreclosure prevention program, which the administration expects to reach up to 9 million homeowners.

The Homeowner Affordability and Stability Plan includes measures to allow homeowners to refinance into loans with cheaper payments, according to a summary of the plan. For example, if a lender agrees to lower a borrower's payment so that it makes up no more than 38 percent of his income, the government would pay to lower the payments further to 31 percent of income. The aim would be to make the payments affordable.

A key part of the plan would allow 4 million to 5 million homeowners who are still current on their loans, but have less than 20 percent equity in their homes, to refinance, so long as their loans are owned or guaranteed by Fannie Mae and Freddie Mac.

Finance companies cannot currently refinance a loan if the homeowner owes more than 80 percent of the home's value. But under the plan, Fannie and Freddie -- which were taken over by the government last year -- would be able to refinance a mortgage if it does not exceed 105 percent of the current value of the property. For example, if the value of the borrower's property is $200,000, but the homeowner owes $210,000, he or she could still qualify for the program.

So, basically, we have the federal government stepping in to force lenders to lower payments on homes owned by people who cannot afford to pay for them.  Remember, most of the people in those situations are people who are house-flippers or who knowingly took on a far bigger house payment than they could afford because they assumed the housing boom would continue indefinitely.  I'm sorry, but I'm having a hard time dredging up a whole lot of sympathy for them, and it'll get even harder as I'm paying for the bailout of all those irresponsible people with my tax dollars!  On top of that, Obama is empowering Fannie Mae and Freddie Mac to guarantee mortgages and grant mortgages that are bigger than the value of the house itself!  Um...excuse me, but wasn't that what started this whole mess in the first place?!  But, oh yes, there's more:

While some of the measures can be implemented by the Treasury Department, others parts of the plan will require congressional approval. For example, a key part of the administration's new package is legislation changing the bankruptcy law to allow judges to modify the mortgages of distressed homeowners, including by reducing the principal of the loan to the property's current market value. "My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan," Obama said.

The provision has already passed a House committee, but faces fierce opposition from the financial services industry and Republicans. About 150 consumer bankruptcy lawyers descended on Capitol Hill last week to lobby for the measure.

"These attorneys see every day the real-world impact of the failure over the last 18 months of meaningful solutions from Washington," said Maureen Thompson, of National Association of Consumer Bankruptcy Attorneys.

So, Obama also wants bankruptcy judges to be able to break contracts (i.e. mortgages) at will to benefit those irresponsible homeowners even if it hammers the loan holder!  And, don't forget, it was the federal government that forced those lenders to make those risky loans in the first place through the likes of the Community Reinvestment Act, and it was the federal government (especially Democrats) who fought every attempt at reforming and regulating Fannie and Freddie throughout the Bush administration!

And let's do the math here: $75 billion divided by 9 million homeowners equals about $8,333 per homeowner.  I don't know about you, but that's not going to make it very far on my mortgage, and our house is far from extravagant!

So, what Obama is doing here is bail out out those who are most irresponsible and can't afford their homes because they should never have gotten into them in the first place, and he's going to do it using taxpayer dollars from people (like you and me) who have been responsible and met their obligations.  And, this is just the first whack - he'll be back for more money in the future because the amount of money he's throwing at this project now is pitifully useless.

Now, here's some professional analysis to help you understand what's going on.

Ace of Spades:

I know this situation is painful for a lot of people but absent some compelling reason beyond the "we have to keep families in the homes they can't afford and shouldn't have purchased in the first place" argument, it seems the housing market's price correction is a feature, not a bug of the system.

We don't have the details of the plan yet but if the idea is we have to reinflate the housing market, I'm not quite sure why that's either a good idea or a sensible use of the governments non-existent resources. If creditors want to renegotiate the terms of an agreement that is one thing, if the government is going to do it by fiat (either legislatively or though bankruptcy proceedings) that's quite another.

Based on the events of the last few months, I fear the worst.

Michelle Malkin:

At least the House Republicans seem to have a clue. Here are questions about O's plan they've released this morning:

1. What will your plan do for the over 90% of homeowners who are playing and paying by the rules?

2. Does your plan compensate banks for bad mortgages they should have never made in the first place?

3. Will individuals who misrepresented their income or assets on their original mortgage application be eligible to get the taxpayer funded assistance under your plan?

4. Similarly, will you require mortgage servicers to verify income and other eligibility standards before modifying mortgages?

5. What will you do to prevent the same mortgages that receive assistance and are modified from going into default three, six, or eight months later?

6. How do you intend to move forward in the drafting of the legislation?

Chris Kinnan of Freedomworks adds a few more questions:

Will people who cashed out their equity with a refinancing be eligible?

Will borrowers who never had any equity in their homes be eligible (people who financed 100%)?

What is the upside for taxpayers if housing prices recover? Who gets the gain?

And mine:

How is this fair to renters and home owners who had the foresight to take on loans they could afford?

Will illegal aliens be eligible for the program?

Why is it government's role to take my money to fund someone else's property value preservation?

Answers, please.

Jonah Goldberg:

I understand that from the 30,000 feet level most policymakers view these things from, having homes worth less than their mortgages is a real problem. People can abandon their mortgages, which breeds contagion etc, etc. But I really don't understand why it's such an unbearable crisis for responsible homeowners themselves. Maybe it is in some cases, but it seems to me that having your home worth, say, $500K when your mortgage is for $600K is certainly undersirable but not necessarily disastrous. If you bought during a housing boom, you shouldn't be stunned and crestfallen if the value of your home temporarily sinks for a while —  that is unless you're a house-flipper, in which case my sympathies are significantly reduced anyway. Most people buy their homes and expect to hold on to them for a while. I don't sell my stocks every time they go down. A dip in the value of your home now, isn't a dip for all time. So, long as you can pay your mortgage, I don't really see why you would walk away.  And, even if you are the kind of person who abandons his obligations, I have to presume that walking away from your mortgage has real costs to your credit rating (and, hopefully, your self-esteem). Indeed, if abandoning your mortgage doesn't nuke your credit score, what good are credit scores in the first place?

The bottom line is that this is yet another move to expand government control over a major, major industry: home mortgages and financing.  Once the government controls mortgages, they control people.  It's also another massive expense, which contributes to the snowballing financial woes of America at large, which we now know is part of Obama's attempt at re-making the country into a socialist regime.  In short, this is another disaster in the making.

Oh, and by the way, as soon as Obama announced his latest takeover plan, guess what else happened?  You got it - the market dropped again:

At least this time Barack Obama actually had a plan.  Unlike the bait-and-switch moment from Tim Geithner on TARP II, Obama rolled out an actual plan to have the government force refinancing and lower payments for mortgage holders under water.  The markets reacted better than they did last week to Geithner's epic fail, but that's not saying much:

Wall Street extended its decline Wednesday after President Barack Obama released details of his $75 billion mortgage relief plan. ...

In midmorning trading, the Dow Jones industrial average fell 25.40, or 0.34 percent, to 7,527.20.

Broader stock indicators also slid. The Standard & Poor's 500 index fell 3.58, or 0.45 percent, to 785.59, and the Nasdaq composite index fell 4.80, or 0.33 percent, to 1,465.86.

Thus far, Wall Street has not exactly given Barack Obama a rousing show of confidence.

I said it before, and I'll say it again: the biggest obstacle to a recovering American economy is Barack Obama himself.

There's my two cents.