Obama Backs Bailout Measures for “Unfair” Mortgages
March 27th, 2008 by Chris KinnanIn his economic address today, he addressed the housing markets:
Over 2 million households are at risk of foreclosure. Millions more have seen their home values plunge. Many Americans are walking away from their homes, which hurts property values for entire neighborhoods and aggravates the credit crisis. To stabilize the housing market and to help bring the foreclosure crisis to an end, I’ve sponsored Senator Chris Dodd’s legislation creating a new FHA housing security program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages. This will allow Americans facing foreclosure to keep their homes at rates that they can afford. Now, Senator McCain argues that government should do nothing to protect borrowers and lenders who’ve made bad decisions or taken on excessive risk.
And on this point I agree. But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly; they will take their losses. It’s not a windfall for borrowers, as they will have to share any capital gain. Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis. It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole. That’s what Senator McCain ignores. For homeowners who are victims of fraud, I’ve also proposed a $10 billion foreclosure prevention fund that would help them sell a home that is beyond their means or modify their loan to avoid foreclosure or bankruptcy. It’s also time to amend our bankruptcy laws so families aren’t forced to stick to the terms of a home loan that was predatory or unfair.
Expanding the role of taxpayers in mortgage financing, in the form of new powers at the FHA, is a bailout. In particular, it bails out lenders by providing them with government “incentives” to restructure loans. And who, exactly, determines what constitutes an “unfair” home loan?
Our friends at Heritage have a more detailed analysis of the Dodd-Frank plan that Sen. Obama is endorsing. Heritage’s David John notes that the Dodd-Frank plan rewards home flippers and that the overall program is ” essentially a government buyout of problem mortgages disguised as a refinancing plan.”
In a debate earlier this year, Sen. Obama said the government should not bailout home speculators but he’s endorsing that approach now.
March 27th, 2008 at 12:38 pm
My understanding is that the Dodd plan does, in fact, differentiate between real estate speculators and run-of-the-mill homeowners, so I’d like to see a little more research on this before we decide that Obama’s flip-flopped on this.
In addition, I’d like to see additional comment on the bill from someone other than the Heritage Institute. The first thing on their page is that the bill “won’t fix the mortgage mess,” but that’s not what the bill is intended to do anyway. It’s just a band-aid for the hardest hit. And HI’s assertion that “lenders will quickly request that this guarantee be made available to all loans to borrowers with poor credit histories or lower incomes” is unsupported. (Even so, they can ask whatever they want, that doesn’t mean they’ll be covered.) And the plan they push, Isakson’s Real Estate Tax Credit, does nothing to help anyone who purchased their home prior to March 2008. That’s a pretty bald-faced switcharoo, trashing the plan that would help people and supporting the plan that would help, well, hardly a soul.
And the default risks are peanuts compared to the taxpayer bailouts of the banks, bond insurers, and credit default swap traders. Notice how KPMG is in the news again for another criminal conspiracy surrounding a shady tax deal costing taxpayers billions? You guys are so concerned about the poor taking your money, while KPMG operates basically like a criminal enterprise ripping us and other investors off as well. And all that risk falls to the taxpayers now. And that’s trillions of dollars, not millions.
It doesn’t make sense to focus so much energy defending taxpayers against minor threats and ignoring the major ones. I have a really hard time getting up in arms about this
March 27th, 2008 at 12:51 pm
The failure of Sarbanes-Oxley is pretty profound given the current mess with KPMG, rating agencies, etc. We’ve added a lot of regulatory costs for no apparent gain.
I agree that perspective is needed…the Fed’s “temporary” window for investment banks is far more troubling. But the Dodd-Frank plan is also the starting point for all kinds of mischief… the reality is that this is a multi-trillion dollar asset price correction and taxpayers should not have any direct exposure to it, on moral and on fiscal prudence grounds.
Yes, the Isakson tax incentive plan is one of the more useless ideas out there.
March 28th, 2008 at 4:51 pm
Agreed, but I believe that the problem is that lobbyists for the affected industries were given too much power in crafting that Act. I don’t think the problem is necessarily too much regulation, but more that the regulations themselves were poorly designed.
April 14th, 2008 at 8:10 pm
Are you an idiot sickle? A criminal enterprise? Get the facts straight and check to see when they issued their last opinion on those financial statements. Additionally, it is not the auditors responsibility to make sure investors are diversified or that people make on debt that they plan on repaying. Its about education, not assigning arbitrary blame.