By Bill Wilson – As the Obama Administration continues to be weighed down by bad economic news, including a double dip recession in housing and rising foreclosures, it is flailing about to improve the housing market it promised to turn around.
This is not all that surprising since New York Times columnist Paul Krugman recently cracked his whip in the direction of the Administration. He wants “a serious program of mortgage modification, reducing the debts of troubled homeowners.” Apparently, Obama’s other efforts have not wasted enough taxpayer money.
Since taking office, Barack Obama has pledged $50 billion in mortgage modifications from the Treasury, and another $25 billion from Fannie Mae and Freddie Mac. Plus, recently it has been trying to shake down banks for up to $30 billion to be used for more mortgage principal reductions.
Then there’s the so-called Hardest Hit Fund, another $7.3 billion to states, according to the program’s web site, “struggling with unemployment rates at or above the national average or steep home price declines greater than 20 percent since the housing market downturn.”
This state-by-state program applies to Alabama ($162,521,345), Arizona ($267,766,006), California ($1,975,334,096), Florida ($1,057,839,136), Georgia ($339,255,819), Illinois ($445,603,557), Indiana ($221,694,139), Kentucky ($148,901,875), Michigan ($498,605,738), Mississippi ($101,888,323), Nevada ($194,026,240), New Jersey ($300,548,144), North Carolina ($482,781,786), Ohio ($570,395,099), Oregon ($220,042,786), Rhode Island ($79,351,573), South Carolina ($295,431,547), Tennessee ($217,315,593), and Washington D.C. ($20,697,198).
In many cases, it reads very much like a selection of presidential swing states, including Florida, Ohio, North Carolina, Nevada, and Michigan. So, that’s how it ought to be viewed: As a payout by Obama to delinquent borrowers in exchange for their votes. Congress should be investigating what amounts to nothing more than a costly reelection strategy.
All told, Obama has pledged an obscene $112 billion for principal reductions across the country. But still, it only accounts for about 15 percent of the total $751 billion in negative equity. So, despite the enormous price tag, it hardly makes a dent in the problem.
But, dutifully, on Saturday, June 4, acting Assistant Secretary for Financial Stability of the U.S. Treasury Timothy Massad reassured the mainstream media, and Krugman, that, “We are definitely trying to facilitate more principal reductions.” All of the programs cited were pretty much already in the pipeline, so nothing new there.
Perhaps Krugman’s problem with the programs is that they don’t work. For example, if the problem is that too many homeowners are unemployed and cannot make any monthly payments, how will reducing the monthly payment from, say, $1,200 to $900 help? It won’t.
Which is probably why there’s been so few modifications.
The Administration promised to “help as many as 3 to 4 million struggling homeowners avoid foreclosure.” Right now, there’s only been 675,000 taxpayer-subsidized modifications. No wonder, really. In order to get a modification, at a minimum, a borrower still needs to show they could make the monthly payments at the reduced rate.
That so few qualify demonstrates on its face the hopeless cause of foreclosure “prevention.” The fact is, these modifications will not produce the economic and particularly, the jobs recovery that is necessary for households to get their finances back in order.
Similarly, modifications will have absolutely no impact on the declining value of property whatsoever, as losses are ultimately realized on mortgages.
Even if the rules were eased, and principal reductions given without regard to the ability to repay, all they might do are enable a homeowner to sell his or her home without having to write a huge check for the negative equity at the end of the process, and without the bank taking a loss.
Even then, in the end, the individual would lose the home he or she couldn’t afford anyway. The money just goes directly to making the bank whole on the loan of a lesser amount—and the bill will be picked up by future generations on the $14.3 trillion national debt. In that sense, it’s just another bank bailout.
Therefore, the only difference between the modifications and a foreclosure is that Obama wants to pin the costs on taxpayers. Is that fair?
Really, it’s a criminal enterprise of plunder from the public treasury, disguised as a compassionate helping hand for distressed homeowners.
Former Fannie Mae chief credit officer Edward Pinto warned Congress last year that the Administration’s modification programs were forestalling a housing recovery. He said, “HAMP has also slowed down foreclosure processes, pushing the level of heightened foreclosure activity out to 2013 or 2014 and likely extending the period for the market to correct.”
Pinto predicted a 40 percent redefault rate for the government modifications. And with foreclosures continuing to rise this year, the housing slump Obama promised to end will likely continue well into 2012.
If only government had gotten out of the way in the first place, the nation would already be in recovery. Sadly, that’s one lesson Obama will not be learning any time soon. He’s too busy buying votes.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
