Thursday, February 19, 2009

Mortgage Madness

"I'm here today to talk about a crisis unlike we've ever known." - Barack Obama, beginning his speech to introduce his mortgage bailout plan.

"The plan I'm announcing focuses on rescuing families who played by the rules and acted responsibly... I want to be very clear about what this plan will not do. It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators... It's going to allow millions of families, stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero." - Barack Obama.

So his holiness the President of the United States goes to Mesa, AZ to introduce his plan to "help struggling homeowners." Strategically chosen, I suppose, because the Phoenix area was hard hit when the housing bubble popped. Funny thing, though... there was significant protest in the area over this speech. People holding signs reading:

"Give Me Pelosi's Plane"
"I want... a house (crossed off) a car (crossed off) a president with ethics and honor"
"Gimme-nomics - Give Me A Baby Grand Piano"
"Annual Passes to Disneyland"
"Fund Bikini Wax Now"
"Stimulate the Economy: Give Me A Tummy Tuck"
"Give Me Liberty OR At Least A Big Screen TV"
"Can I Have Free Gas With My Free Rent"
"I Need A Beach Front Condo"
"Free Beer For My Horses"
"Mr. President!! Before we're forced to Hades can you get me a Mercedes!!"

I have to say, although I'm sure I sound cold and cruel, I have a very hard time with the government "rescuing" anybody from a foreclosure. Yes, even though Obama's plan supposedly focuses on rescuing families who "played by the rules and acted responsibly." First of all, playing "by the rules" does not necessarily mean that they "acted responsibly." Just because the rules said that you could take out a mortgage up to 110% of the value of the home doesn't mean it was the responsible thing to do. The rules made it perfectly okay to take the equity out of your home to buy a big screen television and a new car, but that wasn't exactly the responsible route to take, either. The "rules" also required banks to lend to people who were extremely high risk (or, in other words - people the banks knew wouldn't be able to repay). This was not responsible on the part of either the banks or the people taking out the loans. 

I think it's pretty apparent, too, that Obama was blowing more sunshine up our collective derrieres when he stated that his plan was going to help millions of deserving families refinance at lower rates at a cost to taxpayers of roughly zero. I know that Obama has a messiah complex, but this is getting ridiculous. It's like he's into loaves and fishes now or something... If there's a plan out there that is going to "help" people get a better deal than they currently have, somebody has to eat the difference. Whether the government is going to fund that on the books, or whether they're going to force the banks to eat it -- the taxpayer is ultimately going to pay. In some way, shape, or form -- the piper will be paid. Unfortunately for Obama, if he's going to force mama dollar and papa dollar to make many baby dollars to spread around, he's going to have to actually print that money. He's not capable of pulling it out of the sky.

Rick Santelli of CNBC said, "The government is promoting bad behavior, because we certainly don't want to put stimulus forth and give people a whopping eight or ten dollars in their check and think that they ought to save it! ...I have an idea. The new administration is big on computers and technology. How about this, President and new administration. Why don't you put up a website to have people vote on the internet as a referendum to see if we really want to subsidize the losers' mortgages? Or would we like to at least buy cars, buy houses in foreclosure, and give them to people who might have a chance to actually prosper down the road and reward people that could carry the water instead of drink the water? This is AMERICA!! How many people want to pay for your neighbor's mortgages that has an extra bathroom and can't pay their bills? President Obama, are you listening? You know Cuba used to have mansions and a relatively decent economy. They moved from the individual to the collective. Now they're driving '54 Chevys (maybe the last great car to come out of Detroit)... We're thinking of having a Chicago tea party in July. All you capitalists that want to show up at Lake Michigan, I'm gonna start organizing. If you read our founding fathers, people like Benjamin Franklin and Jefferson, what we're doing in this country now is making them roll over in their graves."

Can I get a resounding amen to that?

The basic bones of Obama's plan is three-fold. The first part would - get this - "help homeowners who are still current on their payments, but who are paying high interest rates and cannot refinance because they do not have enough equity in their homes." (NYT, Feb. 28, 2009) Don't get me wrong... it would be a huge bummer to be in this position. I do have a measure of sympathy for people who feel stuck like this. But the fact is that nobody forced people to buy the biggest and best house for which they could qualify. What about the Americans who purchased a house and left that equity alone... lived a modest lifestyle in a modest home because it was easily within their means? Why should those people have to fork over money to the folks in the next neighborhood over who decided to take their equity and upgrade their house and lifestyle off it? Why punish the responsible? The savers of society? Why reward the debtors? What sort of message does this send?

The second part of the plan is supposed to "provide incentives to lenders who alter the terms of loans to make them affordable for troubled borrowers." This is basically the portion of the plan that will help folks "at risk" of going into foreclosure. I assume this to mean that this portion of the plan is for people who are currently behind in their payments but have not been served with a foreclosure notice yet. 

Then, there's the third part of the plan - and this might be the best part yet. Get this... we're going to give $200 billion to Fannie Mae and Freddie Mac. Can I take you back to September of 2008? Remember when the Treasury Department announced it was going to effectively take over Fannie Mae and Freddie Mac? They were "critically wounded, government-sponsored mortgage behemoths." September 8, ABC News online had a story that said, "The federal takeover of mortgage giants Fannie Mae and Freddie Mac will likely lower the cost of a mortgage for buyers with good credit, but it will also likely stick U.S. taxpayers with a bill in the tens of billions of dollars, analysts have concluded." Isn't it strange how just a few short months ago, we were wringing our hands over "tens of billions" and today we're shrugging off two hundred billion? 

So we've come down the road far enough that the government has a $275 billion dollar mortgage rescue plan. But, according to the NYT, "analysts and administration officials alike cautioned that it would not come close to halting the tidal wave of foreclosures. Nor would it provide much help to millions of homeowners who are 'under water,' or holding mortgages that are bigger than the market value of their houses." 

Obama said in his speech, "This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild." Okay... so then what is the point, exactly? We do still live in America, right? The land of opportunity? I'm pretty sure we all need to "rebuild" a bit... and it's high time we take responsibility for doing so. For if we don't, the consequences will be disastrous. We will pay for our "prosperity" with our freedom. And mark my words... once freedom is gone, prosperity will follow it out the door.

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