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03.09.2012 0

Obama playing house with other people’s money

By Rebekah Rast —

“The problem with socialism is that you eventually run out of other people’s money.” ― Margaret Thatcher

Sometimes the government will do something and many citizens will think, “Wow. How nice!”

Perfect example: President Obama’s plan to refinance mortgages for 2 to 3 million borrowers.

According to the Department of Housing and Urban Development (HUD), any American with a mortgage insured by the Federal Housing Administration (FHA) endorsed on or before May 31, 2009, and who is current with their mortgage payments would qualify.  This is enforcing a Federal Housing Finance Administration (FHFA) policy from Feb., allowing refi’s up to 125 percent loan-to-value.

Furthermore, during a press conference on this topic, President Obama stated:

“Today we’re taking it a step further — we are cutting by more than half the refinancing fees that families pay for loans ensured by the Federal Housing Administration.  That’s going to save the typical family in that situation an extra $1,000 a year, on top of the savings that they’d also receive from refinancing. That would make refinancing even more attractive to more families. It’s like another tax cut that will put more money in people’s pockets. We’re going to do this on our own. We don’t need congressional authorization to do it.”

This is the part where you say, “Wow. How nice!” (Never mind he is superseding congressional authority that only allowed refi’s for up to 90 percent loan-to-value and never mind that qualifiers will have to pay the other half of the refinancing fees up front.)

Now here’s the real catch:  The borrowers who qualify for the refinanced mortgage do not have to go through the typical underwriting process — meaning no credit check, no employment verification and no verification of income, reports CNS News.

And the cherry on top: because FHA will surely take a hit on covering these refinanced loans, guess who gets to pay the government back after it adds this bill to the federal debt?

If this whole plan sounds familiar to you it should.  Back in 2008 when banks issued loans to borrowers who could not afford them it led to the housing crisis.  Obama’s plan assumes that these 2 to 3 million homeowners will undoubtedly continue paying their mortgages on time, especially since they’ll be cheaper.  This is a very optimistic point of view — since it is possible some of these homeowners aren’t looking for a refi, but perhaps a way out of their mortgage altogether.

The problem here is of those 2 to 3 million borrowers some probably experienced great growth during the housing boom in the mid-2000s. Therefore maybe they borrowed against some of the equity in their home and bought another home, or a really nice vehicle.  But after the collapse their home (or homes) lost a great deal of value.  Yes, they are making their payments on time and living out the consequences of their earlier decisions, but thanks to Obama’s plan, they will be subsidized and can keep all their houses and cars because their mortgages are about to get substantially cheaper.

And of course we can’t forget who ultimately will pay the price for this generous plan, which if 2 to 3 million people qualify and each save $3,000 a year, it will cost about $6 to $9 billion a year.  This is spending a lot of money America doesn’t have to not even address the real problem of the housing crisis — the rate of foreclosures.  This is an attempt to prevent current homeowners from bailing on their mortgages.

It is a risky and expensive plan to prevent a problem that might or might not exist.  But then again, it is always fun to play with other people’s money.

Rebekah Rast is a contributing editor to Americans for Limited Government (ALG) and NetRightDaily.com.  You can follow her on twitter at @RebekahRast.

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