President Barack Obama announced that between $50 billion and $100 billion will be spent on making mortgage payments affordable, as part of the giant gamble he and Congress are making, under the title of "stimulus." No help will be provided for those who made rational decisions on purchases, but ample support will be provided to those who couldn't afford the homes they signed up for. Rationalizations for such a move are being promoted by the administration, Congress and the MSM. They are easy to dispense, but is such policy right?
Banks are temporarily suspending foreclosings on some home loans until they have had time to understand what the government really intends, and they've had a chance to negotiate their way into the handouts. Financial corporations such as Citigroup, Chase & Co., and Morgan Stanley will set a moratorium in place until early March, by which time it is expected that the mortgage modification details will be finalized.
The hard sell for this program uses supposedly sincere reasoning such as, "If the house next to yours is in foreclosure, your home drops in value as well." That is the big one since instilled fear is an instrumental motivator. At first blush, it sure sounds convincing, but then it settles into your consciousness, and a discomfort begins to shade it's seemingly benevolent intent. You begin to dissect the soundness of the argument and stand back to look objectively at the whole picture. Where is the common sense?
Who else is thrilled with the Obama and Congress decision to rush into a cash dispensation of such magnitude? Everyone in the bad mortgage food chain is in support of stemming the foreclosure rate. Banks, large and small, are clamoring for more bailout money to cover bad loans they were responsible for providing, and their executives don't really want to give up the summer home in the Hampton's. Mortgage brokers, real estate brokers, and homebuyers who are underwater on their house purchase decisions are cheering Obama and Congress. The only ones not in favor are those who made financial decisions diligently, having saved their money and minimized the outlay for shelter as much as they could.
Aside from unknown hundreds of billions that will be required to implement such shocking endeavor, Rep. Barney Frank intends to introduce legislation to change bankruptcy law that will enable judges to adjust the principal on mortgages held by homeowners who cannot afford the payments. He plans to provide protection to lenders who reduce already set and contracted interest rates, or change the terms on troubled loans. This movement has enormous ramifications for the long-term viability of the financial services industry. It will certainly impact investors who invest in mortgages with set interest rates and steady returns on investments.
The plan is to reduce potential delinquent borrowers' payments to as low as 31% or their pre-tax incomes. Evidently those facing foreclosure will get preference on the priority list. Who is not on the list? Those who purchased homes well within their financial means. These are also the people who will be paying for their wayward neighbors' well being. We should also not forget that there are many who continued to rent, instead of leaping into the froth of the real estate pool of the past twenty years. Should renters also be given a financial break for having made good decisions, and for NOT having been seduced by the "no money down" siren's song?
We are witnessing the government sliding the country into forced rewarding of bad behavior. This was bad behavior by borrowers, by lenders and by all the middlemen eating off the mortgage loan buffet. In such a program the opportunity for abuse will be significant, and probably uncontrollable. Why would people who purchased automobiles they couldn't afford not also get bailed out? Didn't many of these mortgages finance giant TVs and second cars?
The argument for "help" will originate from all corners of the economy. Across the U.S., businesses are preparing their theatrical presentations for requests of a piece of the bailout pie. With the trillions of dollars being loosened from the grasp of future generations by the government, it is understandable that the line-up extends invisibly over the horizon. There is no indication from any source, and certainly not from Obama, Congress or their economists friends, as to how any of these trillions will be repaid. They are probably afraid to face the real answer. Public reaction would be immediate.
Some of the answer for return to a healthy economy rests in individual responsibility for reasonable behavior, enhanced with large doses of education. The government should consider spending money on educating the whole population on the management of money, and on making sound financial decisions, particularly those pertaining to housing. The result would be much less self-destructive behavior. It wasn't the fine print that burned borrowers, it was the big, bold print. This is one of those areas where even a little knowledge would go a long way.
This dramatic shift of government intervention into the economy from the backs of future generations with no plan or concept for recovery is a realm never before experienced, not even in the 1930s. The added measure of placing additional burden, even punishment, on those who have made the right financial decisions in their lives, is also beyond the pale of reason. The only ones in support of these measures are those with a stake in the game, or those panicked into thinking it is necessary, or possibly those who don't pay taxes. The government's unreasonable behavior on this program is extremely difficult to comprehend.
James Raider writes The Pacific Gate Post