By Rebecca DiFede — In a shameless stunt to secure reelection, the Obama Administration is considering granting refinance loans to borrowers who owe more on their mortgages than their houses are worth, allowing them to qualify for today’s lower interest rates. This is thought to be a potential “stimulus” for the economy because it might help those people struggling to pay their mortgages and allow them to spend their money in the weakened market.
However, logic tells us that if a borrower is already having trouble paying a mortgage, getting a new one at a slight discount will not suddenly give him a burst of disposable income. But how can we expect our illustrious president to understand such things when it is clear he never passed his Economics 101 class?
According to an article in the New York Times, refinancing these properties might save homeowners upwards of $85 billion dollars a year, despite having a credit score that would prevent them from renting a bicycle.
And guess where that $85 billion is coming from? Why, from the pockets of hard-working Americans, of course.
Once again, Obama has promised savings to people who have already proven to be notoriously bad at managing their money at the expense of the hard-working tax payer. It seems that if you owe more than your home is worth and are unable to qualify for refinancing you are to be rewarded by the government and given money that other people were saving to help pay of their own mortgages. But hey, sharing is caring, right?
Americans for Limited Government (ALG) President Bill Wilson commented that, “The whole reason the crisis began was because cheap loans were provided to those with poor credit. Now, the Obama administration wants to return to this failed policy to prop up his sagging reelection prospects by directing the money to favored constituencies that took out loans which could not be repaid. This is nothing more than an $85 billion Obama-Reelect slush fund.”
Not only does this policy continue to soap-up the housing decline slip-n-slide with policies that led to the bubble burst in the first place, but it prevents those who have been able to keep up with their mortgage payments for getting the most out of their hard-earned credit when selling their homes.
As FOXNews.com’s Chris Stirewalt explains, “Rather than clearing the glut of foreclosures from the bubble burst that preceded the panic, lenders have been forced to delay the process. That has prevented homeowners in good standing from getting top dollar for their homes.” So, Obama’s plan would merely lengthen the housing downturn.
Wilson pointed out that the plan would barely make a dent in the problem. “[W]ith homeowners underwater in their homes by about $700 billion, Obama’s $85 billion of bailout-refinance loans will not address 88 percent of the negative equity that is out there,” he said. That is, if it even saves $85 billion.
Previous attempts by the Obama Administration to modify 3 to 4 million mortgages only resulted in just a few hundred thousand modifications — with a likely redefault rate of 40 percent.
True to form, the Obama administration has not yet released specific details of what this plan will entail. This predictable “fake it ‘til we make it” strategy of policy planning has never worked in the past, nevertheless the White House seems hell-bent on continuing to use it. If they don’t give any details, then it’s not really lying when it turns out that they don’t end up doing what everyone expected.
But on the chance this is not a mere trial balloon, again handing out money to borrowers after they were already unable to repay the last time they were loaned money is about as smart as asking a burglar to house sit. Once someone has proven incapable of completing a necessary task, it is not a good strategy to ask them to do the same thing again as they will continue to fail — even if you do say “pretty please.”
If you can’t cook macaroni without ruining it, you are not simply given a new set of knives and invited to compete on Top Chef. Likewise, if you are underwater on a loan and can’t swim, it is not sufficient to just throw you some taxpayer-funded floaties and send you back out into the turbulent ocean. Especially when the floaties were paid for by American taxpayers.
Rebecca DiFede is a contributing editor to Americans for Limited Government.