Questioning Obama's Mortgage Bailout Plan

(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."

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    Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. 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.