Obama’s Plan for the Economy (part 3)

Tonight, we look at the next phase of Obama’s plan for the economy.  This part deals with home ownership and the mortgage crisis that sparked the government’s bail-out efforts (I refuse to call it a “rescue plan”).  Without further ado, I give you…

Plan to Protect Home Ownership

  • Protect and Promote Home Ownership

There are two parts to this part of his plan.  I will lay out my comments on both parts, then summarize my views on them taken as a whole.

  • Create a universal mortgage credit.

OK, I have already (in previous posts) expressed my dislike for refundable tax credits.  However, of all the tax credits I have reviewed so far, this one bugs me the least.  I understand that one of the big “advantages” of purchasing a home vs. renting is being able to write off the interest paid.  I do love the language of this section, though.  Here are the parts that chap my hide:  “…most of whom earn under $50,000 per year…” and “…primarily wealthy Americans benefit [from the existing deduction]”.  Is he trying to define those who make $51,000 per year (and who itemize their deductions) as being “wealthy”?!?  OK, so overall, I am leaning towards this part of his plan being OK…until I look at the pricetag.  He estimates that this proposal would give 10 million Americans an average refund of $500.  Doing the math:  10,000,000 x $500 = $5,000,000,000 (five billion dollars).  OUCH!  And of course, that money will have to come from somewhere…now let me see, there is nothing in Obama’s plan about raising taxes, so…hmmm…where could it come from?  I also love how this part ends: “This tax cut will provide direct relief to many homeowners who are struggling to maintain their mortgage payments.”  OK, let’s get real here, is $500 over one year going to do diddly to help them make their mortgage payments?    Even if the homeowner were diligent enough to put that $500 in the back and only take out 1/12 each month, that would put less than $42 per month in his or her pockets.  Yeah, I am sure they are feeling so much better about making their mortgage payments now!

  • Close Bankruptcy Loophole for Mortgage Companies

OK, I admit it…I know nothing about bankruptcy laws.  I have been pretty poor my whole life, but I never seriously considered bankruptcy, so I never looked into it.  I will assume that Obama’s claims are accurate about multiple-home-owners being allowed to renegotiate their mortgages and single-home-owners not being allowed to.  Again, this seems to fall under my definition of unfair (see my last post).  I think people should be able to renegotiate bad mortgages in bankruptcy, especially if it is their primary residence.  I think it should be strictly monitored by the judge presiding over the bankruptcy hearings to insure the new mortgage is fair to both the homeowner and the lender.  The one thing I disagree with Obama on is his unwillingness to place any blame on the homeowners who signed bad loans: “…regardless of whether the loan was predatory or unfair.”  Did I miss something here?  Last time I checked, mortgage brokers did not bring a gun to the signing.  These people signed these STUPID “125% of value, no-money-down, no-need-to-prove-your-income, balloon-payment-due-after-4-years” loans of their own free will!  If the bankruptcy judge determines that there is no equitable solution for the lender (while still being as fair as possible to the borrower), then they should lose the home.  As cruel as this sounds, it does not come from a mean-spirited feeling.  The government (and yes, I mean government, not banks, although they played their part as well) took perfectly good renters and turned them into terrible homeowners.  I rent an apartment instead of buying a house for many reasons, but one of the biggest is because I know it would stretch my income to the limits.  If any little unforseen expense came up, I wouldn’t be able to pay the mortgage.  I am not foolish enough to take one of these scam mortgages just to get into a house I really can’t afford.  But even if I did, I WOULDN’T COME CRYING TO THE GOVERNMENT TO BAIL ME OUT IF I COULDN’T MAKE THE PAYMENT!!!

<Taking a deep breath now to calm down…>

OK, my views on how well these two points meet their stated goal of protecting and promoting home ownership…They don’t (on either count).  The only home ownership they even attempt to protect are those filing bankruptcy…a little late to help out, if you know what I mean.  And promoting home ownership?  Among who?  The people that are really looking forward to their extra $42 per month in tax credits?!?  Give me a break!

Prevent Future Crises in the Housing Market

Again, he has two subpoints under this part.

  • Mandate accurate loan disclosure.

He suggests creating some akin to the APR (annual percentage rate) so home buyers have a better way to compare mortgages so they can get the best deal.  I think it is a good idea (don’t fall off your chairs…I am trying to be fair here, but it has been very hard wading through this much Marxism).  However, I do have one concern with his idea.  Just as there are people who will finance cars at 14% interest because they have bad credit, you will still have people who have no business buying a house (because of bad credit) who will sign stupid mortgages even if they were mandated to have a flashing neon sign on them that said “You are getting ripped off!”  To quote Forest Gump, “Stupid is as stupid does.”

  • Combat mortgage fraud and subprime loans.

Mortgage fraud is a pretty serious charge, carrying a penalty of up to 30 years in prison.  However, when I looked up mortgage fraud on Wikipedia, most of the examples involved the borrower commiting fraud against the lender, not the other way around.  As the Wiki article points out, “Mortgage fraud is not to be confused with predatory mortgage lending, which occurs when a consumer is mislead or deceived by agents of the lender.”  Obama sponsored the STOP FRAUD act back on Valentines Day 2006, but it never made it out of Committee.  In fact, his speech introducing the bill is the only mention of it in the Congressional Record (he really faught hard for it, didn’t he?).  In addition, it didn’t deal with subprime loans at all.  As best I can tell, mortgage fraud did not cause the housing crisis.  What did, you ask?  Well, let me shed a little light on the subject for you…

The problem (which, you will notice from the first article’s language, was not perceived as a problem) started under the Clinton administration (don’t worry, I am going to bash Bush too in a minute).  Clinton’s HUD had raised the “target” for Fannie Mae and Freddie Mac to having 47% of their assets in loans to people making below the median (middle) income, or in other words, to the people in the lower half of the income scale.  President Bush didn’t do a whole lot to help either.  In 2003, helping Latinos become homeowners was all the rage.  I love a section from that story:

Some Latinos who are self-employed or accustomed to paying for goods and services in cash do not have established lines of credit or documented income, both significant requirements for being considered qualified to buy a home, group officials said.

To help people with nontraditional financial histories, the program has enlisted lending institutions that will look at other means of assessing an individual’s credit history.

Washington Mutual, which is part of the housing initiative’s advisory committee, is one of the lenders that has implemented a loan program that takes into account bills for utilities and mobile or home telephones as an indication of an individual’s financial track record, said Peter Villegas, a vice president with the company.

What a great idea!  Take people with no credit history but who have a home phone, and lend them $250,000.  Can they repay it?  Who knows…they don’t have to prove their income either!  In 2004, the Bush administration pushed the targets even higher.  The article claims they were trying to slow the growth of Fannie and Freddie by making it tougher for them to buy more loans.  Doesn’t seem like it worked too well.  Finally, in 2005, the problems started to become apparant.  John McCain and other Republicans introduced a bill to try to reign in Fannie and Freddie, but it never made it to a full vote.  So how did the mortgage giants respond to the rising targets?  Did it slow down their growth?  Of course not.  They just found a way to keep on lending.  And that, boys and girls, is how we ended up in the mess we are in.

Published in: on November 14, 2008 at 12:16 am  Comments (4)  
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