Posted by
Always To The Right on Saturday, February 21, 2009 5:53:52 PM
Housing Flop
Obama’s mortgage-rescue plan solves few problems, if any, and has the potential to create many new ones.
The problems with Barack Obama’s
proposed Homeowner Affordability and Stability plan are several. The
first problem is that the $75 billion proposal is, in fact, a $475
billion proposal: $75 billion to subsidize the renegotiation of
mortgages and a $400 billion capital injection into Fannie Mae and
Freddie Mac, the government-sponsored enterprises at the center of the
housing market’s troubles. The bill cannot be evaluated without taking
into account its actual price, which turns out to be nearly
six-and-a-half times the figure currently on Washington’s lips.
The
second problem is the structure of the program itself. Obama proposes
to shore up Fannie and Freddie, and to encourage mortgage companies to
renegotiate terms for four to five million homeowners by offering
lenders a bounty of up to $1,000 for each mortgage modified, along with
monthly payments running into thousands of dollars over several years,
for as long as borrowers remain current on their obligations. Under
current standards, mortgage lenders cannot refinance a loan if the
outstanding debt exceeds 80 percent of the house’s value. President
Obama proposes to undo this prudent standard and allow refinancing for
up to 105 percent of the house’s value, so that “upside down” borrowers
will be eligible to participate. This will produce mortgage-backed
securities based on debt that exceeds the value of the underlying
assets and is a recipe for further instability.
So, cui bono? Put simply, this program is
designed to benefit Fannie and Freddie shareholders, not the great
majority of Americans struggling with their mortgages. The only loans
that can be restructured are those held in Fannie/Freddie portfolios or
securitized by the twins. Just in time to benefit from a refinancing
boom, Fannie and Freddie plan to raise their fees to as high as 3.5
percent on April 1. (Note that date, taxpayers, and ask yourselves who
is being played for the fool.)