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Econwatch
February 19, 2009 11:34 AM

Questioning Obama's Mortgage Bailout Plan

By
Declan McCullagh
Topics
Housing Crisis
(AP Photo/Gerald Herbert)
President Obama's
mortgage bailout announcement on Wednesday directs $75 billion in government funds to bail out certain borrowers who are behind on mortgage payments or "at risk" of falling behind.

Although the president said that "it will not rescue the unscrupulous or irresponsible," there's no requirement that that U.S. Treasury deny bailouts to Americans who took outsize risks in hopes that their homes would continue to appreciate.

Which is why Obama's announcement has drawn a howl of protest from renters and those people -- yes, they exist -- who bought cheaper, modest homes they could comfortably afford.

BuckNakedPolitics writes: "I have little sympathy in one sense with the moans of homeowners stuck with negative equity as a result of a gamble that the value of homes would always go up, up, up. One reason I'm living in an apartment is that I recognized that this myth was a myth."

Conservative blogger Michelle Malkin describes it as a new "massive mortgage entitlement campaign." Housing bubble blog Patrick.net dubbed it a "plan to reward debtors at the expense of savers."

NewsRantsAndReviews says:"Obama has one word for those who didn't get in over their heads during the recent housing boom and have paid their mortgages on time: Suckers!"

The administration says that using government funds to lower the mortgage payments for some homeowners is necessary to curb foreclosures; foreclosures tend to depress nearby property prices, and banks generally lose significant sums when forced to repossess a property through foreclosure. The American Bankers Association praised Obama's plan as "a constructive, flexible and multifaceted initiative likely to have a positive effect."

(An aside: The house where the family of the California octuplets live is facing foreclosure.)

On the other hand, critics have said the Obama housing plan means that those who were prudent, saved their pennies, and chose not to take excessive risks will be taxed to bail out borrowers who were not as frugal.

Homeowners who wrote checks for a significant down payment won't benefit as much as those who took 100 percent financing. Homeowners in states without significant foreclosures will subsidize those in states like California, Arizona, and Florida. And borrowers who initially had affordable mortgages -- but then refinanced during the housing bubble and used their homes as ATMs -- stand to benefit.

A reader post at the New York Times says: "I should have lied about my income and refinanced in 2005 for the full 'value' of the loan with a low, low teaser rate. Than I should have used the cash for new appliances, vacations, flat screen TVs. Oh and I could have financed all of my son's college instead of taking out all those loans."

  • Declan McCullagh is the chief political correspondent for CNET. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.

Add a Comment See all 48 Comments
by priceservicecenter September 24, 2009 3:19 PM EDT
my loan is with Aurora Loan Services. I called them to modify my neg. arm loan . first they told me that it was held by private investor and they do not support the obamma plan. then tey told me that I had no equity and this loan requires an equity to do it. funy that on the news they say the loan is for people with little or no equity. they told me to short sale the house i have lived there for 17yrs. yet only owned the home for 5 yrs. I quess foreclosure is the answer I do not think any of the loan co.'s want to help anyone. my loan recasts in 2012. to stay til then or not????
Reply to this comment
by Mr. Common Sense June 20, 2009 3:29 AM EDT
My friend who is an original home owner in my neighborhood bought his
house for about $26,000 in 1976 The value of the house got as high as
$800,000. The house is now worth between $650,000 and $700,000. He has a first mortgage at 500 or 550 thousand and a second or equity line of 55,000.To make matters worse,he is in debt with four credit cards of over 80,000. He owns a small cash business and collects social security. He never denies himself of anything. He recently called his bank and asked for help on his loans. The women who answered, said we cant help you on on your first loan but dont pay the
second or equity line let it go into default, then we can forgive your loan and you could get a 1099 on that loan. How unfair is this.
This is a slap in the face to every person who is trying to eak out a living. Economicaly speaking that 55,000 is really 110,000. If the house we own goes up in value 55,000 were just getting some equity
back. He is up that new extra 55,000. His credit card companies are
offering a bailout at 10 cents on the dollar. He wont take that offer
because he knows his credit willbe bad for the next seven years anyway

PLEASE DONT HELP THESE PEOPLE WITH THESE MORTGAGE SITUTATIONS, YOUR WASTING GOOD TAXPAYER MONEY.THEIR LAUGHING AT US AND GETTING A FREE
RIDE. WERE ONLY PROLONGING A SITUTATION THAT WILL OCCUR AGAIN.

THANKS,
Mr COMMON SENSE
Reply to this comment
by whataplan March 12, 2009 12:07 AM EDT
It amazes me how people would do nothing about a war in a country half a world away they have never even been to nor ever will that consumed a billion dollars a week, or stand by and watch as our elected officials handed billions to the fat cats on Wall Street while the economy spiraled down the drain....
...but would do nothing to help their own neighbor even if it means their own investments become worthless (being surrounded by foreclosures). It doesn't matter how we got here, were here! and you need look no further than the end of your street to see the crisis. We all have our version of it, and if we can't realize now that we are trying to save a country that has been severely fleeced by politicians, corporations, special interests and banks, and do something to save it, in a very short time we will all have nothing. Quit blamestorming and start brainstorming...and yes...help your neighbor (and thereby help yourself)...or kiss it goodbye. Like it or not, below a certain income level, we all suffer the same fate here. And if you are one who believes the miniscule funds we middle Americans were extended as credit for homes, cars, appliances etc have caused this you are cluless...clueless to where the trillions that have been absconded with have gone. If you do not know what I speak of, you too are getting what you deserve. I have paid taxes for everything else (and this I am sure will never stop), so why not have your taxes go for something different for a change? To help Americans help America!

Your neighborhood bank has deserted you...try talking to them and see what they say.
Your politicians have sold you out (with alot of back patting).

Set aside your media-inspired biases and work to save America, the answer is in our name...The United States!

Peace and Good Luck to each of you.
Reply to this comment
by mtmartin March 10, 2009 5:09 PM EDT
People believe the news when it flavors their own thinking. About the bailout......do we really know what is going to happen? I am upset that whomever "IS" in control of how money is handed out; they should begin to get the money these executives walked away with from the banks they worked at; the people lost thier stock; retirement savings.

This is what the news should get to the bottom of. Why did the banks allow such foolishness; what could they possibly have been thinking; obviously not about the employees. I know my good friend lost her 800 shares in Washington Mutual and the CEO walked away with 17 million dollars; he was employed a short time. What is this all about? This really should be dealt with and dealt with it now, ASAP. Those who were allowed to leave with this much money when the bank sold out; the government sure doesn't let anyone of us keep money that they feel belongs to them; so why doesn't the government get the money back that came from the employees savings, and not the CEO's. Answer this for me. Where is our ACLU now? This is what they should fight about; forget the other stuff. It's stupid to think you know better than the person thinking it. You can't win a war that has always been won; but you can make a change that prevents future wars.

I use to work for a company who brought little stuffed animals to our country from Thiland and China; the cost was $.32 to them completed, all costs.........we sell them @ $9.99. I use to think this was a good deal........now I ask you,,,,,how american is this?

Last I would like to have you ask the ACLU why they don't represent the people who lost their money to the greedy bank CEO's. They use to defend the people who were in need of representation, now they defend anyone who has the money.
Reply to this comment
by fusor March 6, 2009 9:50 AM EST
There are only two classes of people who started this process.

Those individuals who purchased far beyond their means. This is also the class that has their credit cards maxed out and think the good ship lolly-pop would never sink.

The other class is the fat cats, that upper 5% of bankers and lending institutions who worked hard to uncover loopholes in the relaxed de-regulation rules that would allow them to create rediculous instruments such as derivatives, (bets on bets based on equations), and make loans so that their accounts receivables looked like they were in touch with real money.

It is a sad day when an institution's creditor's debt can be looked upon as an asset to the extent they could acquire loans themselves based on the supposed asset of their uncollected accounts receivables.

In short, a large fraction of the wonderful wealth that was out there in 2006 which allowed the ballooning of the economy was never really there. The actual cash never existed. It was all on paper and in ledger books until someone actually called on their cash owed them. The house of card collapsed and will continue to collapse as debt is called and goes unpaid.

Those who saved will suffer as the treasury printing presses print money that has no real wealth behind it. Inflation will hit as this insanity continues and savings will dwindle in purchasing power.

As a nation, We are still just taking money out of one pocket and putting in another thinking we are going to do well.

Obama's plan puts freshly printed green backs only in the pockets of those two classes who aided and abetted this nightmare, making it doubly nightmarish.

Let everyone fail who created this crisis and then let's get on with a new economy based on real products and real acquired wealth made the old fashioned way.

RH Richmond, VA
Reply to this comment
by tulliomeneghini March 4, 2009 6:32 PM EST
Finally it will stop the bleedding.
Reply to this comment
by bradleycomm March 4, 2009 12:07 AM EST
Obama, just another political puppet?

Too bad Obama didn?t do the right thing. He had a chance to prove that he was a president that could change things. (Like his election slogan promised)
Instead, It?s business as usual; he gave our hard earned money to the people and businesses that caused the economic crises in the first place.
What would have happened if Obama had divided all that money up between the people that lost their jobs and the lower income and middle class people that make less than $100,000.00 a year. (legal residents only of corse)
say about $60,000.00 each?
(Trickle-up if you will)
They would deposited the money in their bank accounts, paid their mortgages and bills, (that would fix the most of the mortgage crises) some would buy new cars, (that would help the auto industries), buy food, cloths, TVs and toys, all the things that make the economy stable and grow. Businesses would need to hire more people so they can make and sell more products. The Government would get the taxes from all those sales and we would be out of this economic mess in no time.
I have no sympathy for the people that bought a house 10 times bigger than they needed or speculators that bought multiple houses in hopes of making a bundle. The risk was clear and present. They lost, now they should be held accountable for taking that risk in the first place. Government has always taken care of their fellow crooks.
In closing, if you still think that big business doesn?t control the government just look where most of your money is going. Your money is going into the pockets of the top 5% of the wage earners, multi-billion / million dollar businesses directly or indirectly without it passing through the publics hands first.
The economy will never recover until the people have money to buy the products.
A kingdoms wealth is measured by the wealth of its people not the wealth of the kings.
Reply to this comment
by jemore February 22, 2009 2:39 PM EST
This morning on Face the nation Bob had a chance to ask a real hard question. Instead he just went on. Why don't you ask the question" If some one is in a home and it has a $250,000.00 mortage but is only worth 200,000; what good does it do to lower the mortage payment? The home is still worth 25% less than what is owed. Adjusting the payment just creates less equity and so the loss will be bigger if the owner ever goes to sell. Why not make the bank rewrite the loan at the 200K and take the loss. Bankers and brokers got us into this mess it should fall to them to take part of the loss. It is still less of a loss than foreclosure. Also why isn't the goverenment doing anything about regulation of the industry and getting rid of the people who led us down this path. They are still there or in the government. Somebody needs to step up, put their feet to the fire and do something real, rather then bail out the fat cats cheats.
Reply to this comment
by upthere415 February 22, 2009 2:51 AM EST
The most obvious fix is to keep interest rates low for everyone. This give people who are on the borderline some breathing room, people who can make their mortgages will have a little extra money at the end of the month. This will still not help those who over-calculated and can't make their payments anyway. New owners will also benefit from the lower cost of their mortgage on a new house.

Basically: Allow people who want to keep their homes the ability to refinance at a lower interest rate, but do not forgive any principal or any amount due. That is only fair!

Allow people who want to buy new homes and can meet the requirements a low interest rate.
Reply to this comment
by cbovee February 21, 2009 9:50 PM EST
It is my understanding that the new lending guidelines allow for a 31% housing ratio? Is this correct? Conventional mortgage loans are based upon 2 ratios, the
housing and the total debt to income. Part of what caused the "crisis" as we know it today is that in experienced and unseasoned mortgage professionals were underwriting loans and only using the top ratio. There are many other factors to be sure, however being that I was in the Mortgage industry myself I often saw this form of logic used in the approval of loans. I just wish that the government would stop blaming thwe lenders. After all the feds had initially set the guidelines for fnma loans.
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