By Mike Griffith, Staff Writer
Anyone who has even a basic understanding of economics and finance cannot help but see that President Obama’s mortgage plan is a very, very bad idea. Let’s take a look.
One, for starters, the Obama mortgage plan allows Freddie and Fannie to refinance loans for homes worth as much as . . . take a guess: $300,000? $400,000? How about half a million? $600,000? Nope, you’re still low. Try $729,750. Yes, that’s the correct number. So you and I and everyone else who didn’t make bad decisions and who pay our bills on time are going to be on the hook so that people who bought homes worth up to $729,000 can refinance their mortgages. Are you kidding me? Perhaps we should call this “the fat cat’s mortgage bailout plan.”
Two, under the Obama mortgage plan, Freddie and Fannie will make no effort to verify that refinancing applicants were truthful in their original mortgage applications. This will leave the door wide open for the same kind of fraud that helped cause the housing crisis in the first place. One can already go online and find advertisements for people with “bad credit” to take advantage of the Obama mortgage plan. Here is just one of several such ads:
Three, the Obama mortgage plan, apparently learning nothing from very recent history, is throwing our tax dollars at loans that are already proving to be unwise. In the last several months alone, 37% to 55% of the kinds of modified mortgages allowed under the President’s plan are already in default (some put the upper range at 60%).
According to the December report issued by the Comptroller of the Currency and the Office of Thrift Supervision, 37% of modified home loans made within the last twelve months were 30 days or more delinquent after just three months, and 55% of these loans were delinquent after six months. So why oh why are we throwing more money at these kinds of loans? Why?
Four, under the Obama mortgage plan, before a borrower can get a reduced interest rate, the lender will first have to cut the interest rate to the point that the mortgage payment is no more than 38% of the borrower’s gross income. But it doesn’t end here. Once this 38% target has been met, the government, i.e., you and I, will then finance a further interest-rate reduction so that the final mortgage payment is only 31% of the borrower’s gross income. Some simple math will tell anyone that in order to cut thousands of mortgage payments from 38% to 31% of gross income, billions of dollars will be required, which is why the Obama mortgage plan budgets $75 billion just to enable banks to cover half the cost.
Not only will this force some to pay more taxes so that others can pay less on their mortgages, but this subsidy will be based on the recipient’s debt instead of his income. In other words, the more debt somone has managed to pile up with their mortgage, the more money they will get from those of us who did not make the bad decisions that they made. How’s that for “fairness”?
Five, and this is truly mind-boggling, under the Obama mortgage plan, the reduced interest rate will only be good for five years, after which time the rate will increase one percentage point per year until it reaches the prevailing market rate that existed when the loan was executed. Even worse, some borrowers will face a balloon payment after the five-year reduced-rate period. Now, are you kidding me? Are you serious? So we’re going to repeat the mistake of giving people variable-rate mortgages for a few years because they can’t afford the normal rate? Have we learned nothing from the housing crisis?
The Obama mortgage plan smacks a double-wammie on taxpayers. It throws money at loans that are already proving to be unwise, and it uses tax dollars to enable people with homes worth up to $729,000 to refinance their mortgages. It rewards people who have unwisely piled up huge amounts of mortgage debt at the expense of those who have lived within their means. And on and on we could go. It is just a very, very bad idea.
Sources for Further Study:
Assessing the President’s Mortgage Plan
Mortgage Plan Is Rewarding Bad Behavior
Dukes of Moral Hazard
Why Obama’s Mortgage Plan Doesn’t Work
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