Photo Credit: White House
By Robert Romano — It would not be an election year without the White House offering yet another bailout for distressed borrowers who owe more money on their homes than they are worth.
Of course, it’s all political. Don’t let anyone tell you different.
“The goal is to build a constituency of borrowers underwater on their mortgages with the hope that they might — emphasis on might — be able to get some relief,” said Americans for Limited Government President Bill Wilson, calling it “nothing more than a cynical election year ploy.”
There is good reason to be skeptical about the government’s latest program, which would take taxpayer money out of TARP and be used for writing down the principal owed on mortgages.
Every single year of the Obama Administration, such programs have been attempted, including the failed 2009 mortgage modification program, which fell far short of its goal to modify 3 to 4 million mortgages. In the end, just a fraction of the goal— only about 10 percent — were even modified.
More recently, the White House expanded its mortgage refinance operations to allow refi’s above 125 percent loan-to-value. This would allow borrowers to get into a lower interest rate even if they are underwater on their mortgage.
That was done without any vote in Congress, too, and in spite of the fact the law that put Fannie Mae and Freddie Mac into government conservatorship only allowed refi’s of up to 90 percent loan-to-value.
But, if at first you don’t succeed, try, try again is the Obama mantra when it comes to its many failed efforts at foreclosure “prevention”. With millions more foreclosures anticipated this year, Obama appears convinced that trying the same thing over and over again expecting different results is not insane.
The Huffington Post’s Peter Goodman recently blasted Federal Housing Finance Administration head Edward DeMarco for refusing to engage in mass mortgage principal writedowns on the grounds it would result in billions of losses to taxpayers.
The Obama solution? Explained ALG’s Wilson, “Take the money out of another pot of taxpayer money, give it to Fannie and Freddie, and pretend it did not add to the deficit.” In this case, the monies would come out of what remains of the Troubled Asset Relief Program (TARP).
“This is yet another egregious abuse of executive power by Obama, and Congress must demand accountability, and rein in these bailout programs once and for all,” Wilson added, calling on the House Appropriations Committee to defund TARP and for the House Oversight Committee to investigate the bailout programs for any other wrongdoing.
But even if Congress had authorized the use of TARP for mass principal writedowns — it didn’t, but let’s assume for a moment it had — there would still be a big problem.
At most, there’s $134.5 billion left in TARP, according to a 2011 estimate by the U.S. Treasury. Just $109.5 billion according the Financial Roundtable and others. More recently, this month the Wall Street Journal’s Nick Timiraos stated there was just $20.9 billion left.
That compares with the $717 billion of negative equity nationwide, as reported by CoreLogic, on over 11 million properties. That is, $717 billion of more principal owed on homes in excess of they are worth at current market values.
Even if the Treasury estimate were correct about how much TARP remains, if every cent of the $134.5 billion were used for mortgage principal writedowns, it would only touch 18.7 percent of the negative equity.
In reality, far less than that will even be used for the program. Meaning, chances are, most underwater borrowers will not even qualify.
Which makes Obama’s gambit little more than an election year ploy. As ALG’s Wilson noted, it is all based on generating the hope that underwater borrowers might qualify to get their principal reduced, when more than likely, they will not. That is cynical.
Robert Romano is the Senior Editor of Americans for Limited Government.
