Obama to banks: Start cutting mortgage payments

posted at 11:36 am on March 26, 2010 by Ed Morrissey

With his economic policies on housing failing for the past year, Barack Obama has decided to double down on postponing the inevitable.  In order to stem the coming tide on foreclosures, Obama has come up with the notion that banks should simply stop getting paid for their loans, at least for those people out of work.  This child-like solution will mean that Obama will subsidize even more mortgage payments:

The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country’s economic downturn and the inability of jobless borrowers to keep paying. …

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

In other words, those who are unemployed now will have further incentive to stay on unemployment, although in this tough job market, incentives really aren’t that big of a problem.  The $50 billion may not be new, but if it hasn’t been spent yet, it’s still money going out the door to subsidize other people’s mortgages instead of being used to pay down the nation’s debt.  In a tough economy, responsible homeowners can rightly wonder why they will wind up being punished economically for making the right decisions.  Robin Koerner makes that argument at The Moderate Voice:

If I had not been so responsible, Obama’s plan (I still cannot quite believe it) would have given me (via my bank) YOUR money, humble tax-payer, as a gift to reduce my mortgage, and I would have gained to the tune of many thousands of dollars.

However, because I did the responsible thing, MY tax money will be going to help those who were in exactly the same situation as I, but weren’t responsible enough to live within their means and meet their obligations, perhaps because they bought a bigger car than they needed, were paying interest on credit cards they shouldn’t have been using, or whatever…

How dare the government do this? How dare they? This isn’t capitalism. It isn’t even communism. It is some upside down, messed-up mediocracy.  …

So now, not only will I be subsidizing the procreative choices of others that I, out of my own sense of basic responsibility (Thanks Mom) will not make, but also, my wealth will be transferred directly to a subset of them for the particular purpose of bailing them out of exactly the same situation that I had to bail myself out of – and was only able to do so precisely because I have been so careful to live within my means and save what I could for an emergency.

Obama’s supporters will give two answers to this argument.  One, they will say that we need to provide a safety net to those less fortunate, and that the action plan will rescue the housing values of all Americans by limiting foreclosures.  The second argument is false, since we haven’t been limiting foreclosures at all; we’ve merely been postponing them, and not doing that terribly well, either.  The $50 billion will get spent and most of the homes that benefit it will still get seized, which is about the clearest example of throwing good money after bad one can get.

As far as the “less fortunate” and safety nets argument goes, most Americans agree on providing basic safety-net programs for the poor and disabled.  We don’t agree on providing them for people who took risks and chose poorly in doing so.  It creates a moral hazard where bad decisions come with no consequences, and therefore more bad decisions follow.  Better to let people fail and remain free to learn from their mistakes than to cocoon them from the consequences of their actions.  Instead, Obama proposes to do exactly what got us into this problem — floating money on even more debt to artificially inflate the housing markets for just a little while longer.

Call it bad money after bad.

Update: Did the Washington Post change its headline to soften criticism of the White House?


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Comments

LARRY KING: You don’t believe Barack Obama is a socialist, do you?

MCCAIN: No.

faraway on March 26, 2010 at 12:09 PM

forgot my /s

scalleywag on March 26, 2010 at 12:07 PM

No! It’s a legitimate question! Why should not owning a home be a discriminator. The homeless funemployed need help too!

highhopes on March 26, 2010 at 12:10 PM

Do we need any more proof that this man and his ilk hate this country and the free enterprise that made it great?

JamesLee on March 26, 2010 at 11:47 AM

There are so many things like this.
Serious question. How is it possible that his overall job approval ratings are in the upper 40’s??
How is this possible? The man and his minions are destroying the country.
Mass delusion?
Stockholm Syndrome?
4 decades of educational dumbing down??

If its any of the above, we are screwed. Deprogramming the brainwashed take a lot of time and focused effort.

Itchee Dryback on March 26, 2010 at 12:10 PM

faraway on March 26, 2010 at 12:09 PM

Don’t bring up John “Patsy” McCain. I feel sick enough this morning.

Cicero43 on March 26, 2010 at 12:11 PM

If he goes through with this, I think I’ll finally have to hop on the Cloward-Piven bandwagon. This has to be deliberate. No sane economic thinker would ever endorse these policies.

Doughboy on March 26, 2010 at 11:52 AM

Umm I’ve had the same impulse lately. Lance the damn boil already.

Fishoutofwater on March 26, 2010 at 12:11 PM

Apply this same response to healthcare legislation and medical care.

Insurance companies will be “asked” to lower their premiums and costs. After awhile, it’d be cost prohibitive to stay in business and the state will have to step in.

Presto: socialized healthcare.

This is why I was always amazed at the left’s opposition to the legislation. It’s the first step – camel’s nose in the operating room – of many to follow; leading eventually to government takeover of healthcare.

SteveMG on March 26, 2010 at 12:14 PM

LARRY KING: You don’t believe Barack Obama is a socialist, do you?

MCCAIN: No.

faraway on March 26, 2010 at 12:09 PM

Deprogramming the brainwashed take a lot of time and focused effort.

Itchee Dryback on March 26, 2010 at 12:10 PM

Thats a good example. McCain is a lost cause.

Itchee Dryback on March 26, 2010 at 12:14 PM

He was always gonna get a bump if Obamacare passed. Now if he manages to get back to 50% or higher and remain there, then I’m right there with you thinking this country’s screwed.

Doughboy on March 26, 2010 at 12:01 PM

There’s always a chance his supporters will be too lazy get up and vote for him.

zmdavid on March 26, 2010 at 12:14 PM

Obamacare for sick cars, appliances and mortgages. Anything for those of us sick of this administration?

fourdeucer on March 26, 2010 at 11:41 AM

Take two aspirin, get up the at 4:00 AM the next morning to be in the first 100 to stand in line wanting to see a government doctor.

jbh45 on March 26, 2010 at 12:14 PM

Ben Franklins could be worth less than dollar bills in 10 years.

mwbri on March 26, 2010 at 12:09 PMYour optimism is cute.

thomasaur on March 26, 2010 at 12:15 PM

Back when I was a kid people bought homes and the value of them depreciated, just like a car. My car isn’t worth what I owe on it, where do I sign up to get my lender to drop or reduce my payments? /s

scalleywag on March 26, 2010 at 12:15 PM

I saw this on the news last night. They were talking with a woman and her family about their situation and failure to get some sort of deal with the mortgage company. She lost her job and her husband’s salary as a teacher wasn’t enough for them to keep paying their mortgage. It’s a personal tragedy for this family but it’s not my responsibility as a tax payer to pay it for them nor is it the role of government to step in and tell the bank it doesn’t own something it owns. This family can no longer afford their house – that’s sad – but it’s reality and it’s not an acceptable solution to essentially confiscate the property of the bank.

gwelf on March 26, 2010 at 12:15 PM

A little OT but not really:

27 states see higher unemployment, only 7 see lower.

angryed on March 26, 2010 at 12:15 PM

LARRY KING: You don’t believe Barack Obama is a socialist, do you?

MCCAIN: No.

faraway on March 26, 2010 at 12:09 PM

Well, maybe Marxist is a better term.

Aviator on March 26, 2010 at 12:17 PM

A little OT but not really:
27 states see higher unemployment, only 7 see lower.
angryed on March 26, 2010 at 12:15 PM

Let me guess, three of those 7 are MD, DC, and VA

Neuron on March 26, 2010 at 12:17 PM

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months.

I’m honestly confused. How does reducing someone’s home mortgage payment to the same amount they receive in unemployment benefits help them keep their home? Are we to believe that people will give up everything else, including food, utilities, cars, gas, etc, and devote their entire unemployment check towards paying their revised mortgage?

katiejane on March 26, 2010 at 12:17 PM

Tea Partiers will get special free housing.

faraway on March 26, 2010 at 12:17 PM

Tea Partiers will get special free housing.

faraway on March 26, 2010 at 12:17 PM

yes, with nice bunks and special “showers”.

darwin on March 26, 2010 at 12:19 PM

I have personally had someone ask me to take a pay cut so they can stay under the income cap allowing them a state college fund subsidy for their child.

To make up the college subsidy’s difference in their income would require a 60% increase in their income, considering the increase in progressive tax rate commensurate with the required pay increase.

Who wouldn’t do the same?

desertdweller on March 26, 2010 at 12:19 PM

Tea Partiers will get special free housing.

faraway on March 26, 2010 at 12:17 PM

With nice big showers.

Aviator on March 26, 2010 at 12:20 PM

Good post, Ed. But what about the other side of the coin? Where are the calls from the conservative community for the banks to recognize all the bad paper on their books? If conservatives won’t demand honest accounting, then who will? We need mark-to-market accounting now, even if that means bank failures.

Failing to publicly acknowledge the true state of bank balance sheets will never change the underlying fact that most are wildly overvaluing their “assets” and are techincally insolvent. They are awash in a sea of bad paper. Right now the Feds are pretending the banks are healthy, and nothing more. The truth will eventually come out because the underlying math cannot be changed. Loans must cash flow–and when they don’t, losses must be recognized.

I know that mark-to-market would be likely to cause bank failures, but we don’t need any specific bank– we need a banking system that operates on market principles. And right now we don’t have one.

Another thing, if we want to restore some semblance of a housing market, we must let prices come back to reality. Propping up the bubble cannot work. When the government involved itself in lending decades ago, the argument was that they would make home ownership more accessible and affordable for the average American. Today they are in the business of trying to keep prices high, barring access to home ownership for some and making debt slaves of others.

flyfisher on March 26, 2010 at 12:20 PM

darwin on March 26, 2010 at 12:19 PM

Beat me to it.

Aviator on March 26, 2010 at 12:20 PM

highhopes on March 26, 2010 at 12:10 PM

Well, if (God forbid) I lose my job and get unemployment I can guarantee you no one is going to come help me with my rent. They sure won’t tell my landlord to lower my rent, or tell them to let me skip a month or so. Guess what I would have to do? Move somewhere less expensive.

This is insane.

scalleywag on March 26, 2010 at 12:21 PM

I’m honestly confused. How does reducing someone’s home mortgage payment to the same amount they receive in unemployment benefits help them keep their home? Are we to believe that people will give up everything else, including food, utilities, cars, gas, etc, and devote their entire unemployment check towards paying their revised mortgage?

katiejane on March 26, 2010 at 12:17 PM

It doesn’t matter what the numbers are. Deadbeats will continue to not pay. And in 6 months from now, they will come up with yet another program.

All the percentages are meaningless. The end result is millions of people living for free at the expense of everyone else. That is Obama’s goal. Create as many dependent people on him and his ilk as possible.

Think about it…you have no job. But you live for free in a beautiful house, you get UI benefits forever, you get free health insurance. Are you going to vote for the party that says “GET OFF YOUR ASS AND FIND A JOB” or will you vote for the party that gives you all this free stuff?

angryed on March 26, 2010 at 12:23 PM

SteveMG on March 26, 2010 at 12:14 PM

That is exactly the methods thats being used over and over and over. It like Moabamas “support” for coal. He says that..”you can build a coal fired plant..but you will go bankrupt if you do”, or having one of his apparatchiks commenting on claims of the health insurance plan being a Trojan Horse, and stating that its not a Trojan horse..its right there. etc. etc.

How is it possible that so many people are so blind to what is right in front of their eyes?

Itchee Dryback on March 26, 2010 at 12:24 PM

Key West Reader on March 26, 2010 at 12:00 PM

Thank the “self esteem” movement for that.

chemman on March 26, 2010 at 12:26 PM

OK, this is a dumb question, but isn’t the government supposed to enforce contracts between citizens?

BananaSlug on March 26, 2010 at 12:26 PM

Anyone without sufficient savings to pay the mortgage for six months can’t afford to buy a house in the first place.

patriette on March 26, 2010 at 12:27 PM

This is a big f***ing steal.

farright on March 26, 2010 at 12:28 PM

Let me guess, three of those 7 are MD, DC, and VA

Neuron on March 26, 2010 at 12:17 PM

Amazingly enough VA was the biggest loser in terms of employment. Which is weird given all the govt hiring. Guess even with that the economy is falling apart there.

angryed on March 26, 2010 at 12:29 PM

It’d be nice if republicans also campaigned on restoring rules and accountability in addition to repealing Obamacare. It’d be nice if laws and regulations actually meant something, other than “suggestion”.

Iblis on March 26, 2010 at 12:33 PM

BananaSlug on March 26, 2010 at 12:26 PM

Not since the Government Motors takeover when the courts supported the government in trashing contract law.

chemman on March 26, 2010 at 12:33 PM

Better to let people fail and remain free to learn from their mistakes than to cocoon them from the consequences of their actions.

Very pithy – and right to the heart of the matter, now and for the forseeable future, sigh

Ann on March 26, 2010 at 12:36 PM

Obama and Chavez are not much different. The news/radio are next. Ailes knows it already.

Schadenfreude on March 26, 2010 at 12:41 PM

This story has more holes than story.

Without any details, all I see is more ‘hope and change’.

Of course, what we have seen is that ‘hope and change’ is actually old style chicago politics with a select few ripping off the many! I wonder who gets the airport named after themselves in this deal?

Freddy on March 26, 2010 at 12:41 PM

This group get it – they know they’re being raped.

Schadenfreude on March 26, 2010 at 12:42 PM

Good post, Ed. But what about the other side of the coin? Where are the calls from the conservative community for the banks to recognize all the bad paper on their books? If conservatives won’t demand honest accounting, then who will? We need mark-to-market accounting now, even if that means bank failures.

flyfisher on March 26, 2010 at 12:20 PM

Nice attempt at a strawman. However, this is not a coin with conservatives on one side and liberals on the other. Conservatives do demand honest accounting. They insist on it, almost by definition. Banks fail all the time. The stockholders suffer for lax management, but such is life.

The ‘coin’ model of reality is a canard.

percysunshine on March 26, 2010 at 12:43 PM

Wow: Obama to Order Banks To Eliminate Monthly Payments from Unemployed Borrowers; UPDATE: Obama Orders WaPo to Rewrite Article, WaPo Complies

I just told you the news being ordered what to do is next.

Pravda has more credibility, for shame.

America, wake up or perish.

Schadenfreude on March 26, 2010 at 12:44 PM

deidre on March 26, 2010 at 11:51 AM

What exactly does being an assistant manager entail? Leadership is not really one of the talents God gave me, but I’m not too **** proud to be a paper-pusher.

Dark-Star on March 26, 2010 at 12:44 PM

Jebus… why da F8ck did I scrimp… save… bust my ass and sacrifice for a house I could afford?

Talk ’bout a colt 45 sit on da corner economic policy!

roflmao

donabernathy on March 26, 2010 at 12:46 PM

They reminded me of the disincentive to return to work due to the continued lengthening of unemployment benefits. Super!

sheesh on March 26, 2010 at 11:42 AM

Maybe you live in a liberal area and that’s why you’re not getting applicants. However, I live in central PA, which is a very conservative area. My wife has been unemployed since July. She applies for jobs like crazy yet has only gotten 2 or three interviews. I’m greatful for the lengthing of unemployment right now for us in areas that have responsible conservatives in them. NOTE: My bills get paid on time/early, both my and my wife have excellent credit, and we’re using our refund to pay our car off a year and a half early.

DethMetalCookieMonst on March 26, 2010 at 12:46 PM

This is a big f***ing steal.

farright on March 26, 2010 at 12:28 PM

hahahahahahahahah

scalleywag on March 26, 2010 at 12:50 PM

Barack-

Please wait until I refi my home loan before you start making statements like this.

I guess that we won’t see many home loans for quite some time.

molonlabe28 on March 26, 2010 at 12:51 PM

This is FRANTIC redistribution of wealth.

darwin on March 26, 2010 at 11:51 AM

He’s just giving the wealth back to its “rightful owners”.
You know, the non-producers. The man is brilliant. Crash the system now and by November the election won’t matter.

SKYFOX on March 26, 2010 at 12:52 PM

The new Foreclosure Czar = Peggy Joseph.

GrannyDee on March 26, 2010 at 12:54 PM

Don’t you guys realize what this means?
Peggie Joseph was right! She really won’t have to worry about paying her mortgage anymore!

p00pies on March 26, 2010 at 12:59 PM

27 states see higher unemployment, does that mean 30 states see lower unemployment?

rjoco1 on March 26, 2010 at 1:01 PM

Better to let people fail and remain free to learn from their mistakes than to cocoon them from the consequences of their actions.

How do you expect Øbama to build a proper nanny state with that attitude, Ed?

Kafir on March 26, 2010 at 1:25 PM

this is the sad truth of obama’s new initiative….see the link at the bottom of ed’s story for my full story on centristnet….

“Of course, anyone with an ounce of economic training knows that this new Obama initiative creates a massive incentive for individuals to either remain unemployed or become unemployed to incur in the benefits of the lowered or eliminated mortgage payments from the government. This new move to buy off unemployed Americans while pushing some of the cost off onto the banks also works to paint potential GOP opponents of such plan as lackeys of the “fat cat” banks. Indeed, Obama appears to have made the calculation that new initiative to buy off the unemployed with free mortgage payments is more likely to work to generate Democratic votes in November 2010 than his floundering “job creation” programs in the Stimulus and other legislation.”

Anti-Harkonnen Freedom Fighter on March 26, 2010 at 1:25 PM

“The ultimate result of shielding men from the effects of folly is to fill the world with fools.” – Herbert Spencer

Logic on March 26, 2010 at 1:34 PM

Obama’s strength lies with the parasitic underclass and it is they who are being rewarded . . . at your expense.

rplat on March 26, 2010 at 1:47 PM

My parents both lost their jobs recently. They make more on unemployment than what the job market has to offer them.

They are staying on unemployment and this is their 3rd round.

This is what prolonging does. They have no incentive to look for a new job unless it pays more than what they are receiving. With the job market slim, it would be a while before they found something to compensate them above what they are already receiving.

jeridhill on March 26, 2010 at 12:07 PM

This is kind of like the situation I’m in though I’m pretty much willing to take anything I can get… I lost my job with the airline I worked for (after 10 years) just over a year & 1/2 ago & it’s not much fun out here now. I’m required to apply for 2 jobs a week to maintain my benefits, I usually make a point to, at least, double that amount. Be it full-time, part-time, limited-term – you name it, I’ve applied. To date, I’ve only had 4 face-to-face interviews (2 were at job fairs) & I’ve had no luck at all. I’m at the point where I’m applying for jobs that start @ 8 bucks an hour now. I made in the low 30’s at my job & UI benefits paid at around 19 thousand for the year. You learn quickly what you can make do with & what you don’t “need”. We’ve managed ok in most regards because I’ve been able to play Mr Mom for our 2 y.o. son (no full or part-time daycare expenses) & I don’t have a 60 mile round trip commute anymore either.

I probably should’ve picked a better degree… If you went to school for logistics & the one large local employer with the orange trucks won’t hire you, it seems like a waste of time & money…

We have always tried to live within our means, we only owe about 100 bucks total on credit cards & we live in half the duplex we own.

My wife is still employed full-time but she works in the evil health insurance industry & that company is doing lay offs right now, I pray that she does not join me…

I though I was very close to landing a part-time job with the TSA. I’ve got 10 years of airline experience (& 20+ years of customer service work) & had a security clearance during my time in the Navy, you’d think I’d be a pretty decent candidate? Everything was moving quickly & now I seem stuck in background check hell. A person on my block works for the TSA said it takes an average of 12-18 months from taking the test to being offered a job, but I really don’t have the luxury of time…

It’s not like all of us aren’t trying, I’d just like to know what I’m supposed to do. I’d like to give the person who coined the term “funemployment” a kick in the nuts (or teeth) – when does the “fun” start? This blows…

Sorry for the book folks…

Mike in GB on March 26, 2010 at 1:47 PM

Ok, I’m going beyond the “normal” conspiracies now and am beginning to conjure up an explanation that involves a little red man from another world inside his torso pulling strings and levers with a diabolic laugh, MWAHAHAHAH!

Anyone with me?

shick on March 26, 2010 at 1:54 PM

So, Obama had some plans for the financial sector crash that he didn’t get to try; so he’s going to engineer a new crash so he can try them?

Does anyone have a better explanation of what this is intended to crate?

gekkobear on March 26, 2010 at 1:55 PM

So when did this risky lending start?

Does this ring a bell with anyone:

The advent of mortgage securitization in the 1970s changed the borrower/lender relationship breaking apart the various functions that had been performed by the banks and thrifts. In particular, it becomes much less common for the same organization to both originate a mortgage and retain it as a portfolio investment. Lenders with traditional ties to the borrowers were replaced by national service organizations with no tie to the borrower apart from the mortgage and with servicing policies based on national rather than local standards.

From a presentation before the Subcommittee on Housing and Community Opportunity of the Financial Services Committee of the House of Representatives by Edward J. Pinto on 08 OCT 2009, that quote is an attachment inside the presentation by Peter J. Elmer and Steven A. Selig of the FDIC Division of Research and Statistics done as a working paper in 1998 on The Rising Long-Term Trend of Single-Family Mortgage Foreclosure Rates.

It is a fascinating document from 1998 that says much, indicates still more and then does the bureaucratic two-step of the FDIC not wanting to criticize FHA, Fannie, Freddie and Ginnie. The advent of Ginnie Mae was not something that was normal, but done from the request of HUD in 1970 to ‘securitize’ home mortgages.

The FHA, prior to that, had always had a riskier lending stance than traditional lenders who were inside communities making the low-level decision as to who was actually a good lending risk. The change to securitized loans coming down from the federal side changed that traditional lending model that they described:

During the 1950s and 1960s most single-family mortgages were originated by “traditional” lenders, primarily savings and loan associations and mutual savings banks. In addition, mortgage bankers served as correspondents for insurance companies that invested in mortgages and for thrifts in capital-surplus areas, such as some cities in the Northeast. These “traditional” lenders performed all or most of the mortgage lending functions, including mortgage origination, servicing, portfolio management, and investments in the mortgages. They were headquartered in the local markets, where they originated loans and typically had other business relationships with the mortgage borrowers.

The traditional lending system was relatively stable and quite conservative in its lending practices, but also afforded local oversight so that those who had a rough stretch could talk to their local lender who was involved not only in the individual loan but had a portfolio of community loans plus banking done via those in the community. Those local lenders did a risk assesment based on factors they had much better knowledge of than the larger, national lenders that would come to replace them after the market changed due to securitization.

This is before the abuses of the CRA were put in place, but those could only be put in place when there was leverage with larger institutions via enabling regulation that allowed minorities to use federal regulations to pressure larger banks for loans and start to cut off traditional lenders who would not loan to high risk clients. Much of the ‘redlining’ of communities was portrayed as ‘racist’ but was a local judgment of risk for certain local communities… that was over-ridden by federal lending regulations and getting larger lenders into the system. Pressured to make risky loans, the traditional lenders did so and suffered, which is why the Thrifts failed in the 1980’s as they tried to expand their portfolios to non-traditional areas where they were not so good at risk assesment. They could not compete with larger institutions in that arena and failed… at public expense.

So you really can’t blame the banks – they have adjusted to federal regulations, continually, and those regulations have added risk into they system at each and every turn which has caused the traditional lenders to go under as they could not afford such risks at the small scale. Banks have been ‘suffering’ continuously, forced to move out of traditional and safe lending practices by a government that has been enabling those who cannot even hold a job into home mortgages. The NINJA loans (No Income No Job or Assets) is the exact opposite of who a traditional lender would lend to and is a poor risk for any sort of loan, not to speak of a home loan… and yet we had NINJA loans going out the door due to federal regulatory pressure on banks.

That pressure has been building since the FHA was established, but it was marginal to the mortgage market until Ginnie Mae was created. Then things changed and rapidly. I will not cry about those unable to pay their loans: they have contracts they can deal with as adults. The banks are not the villains here: those wanting a ‘nice’ system that is extremely high risk are the villains, year in and year out, crying out for ever more leniency, ever less accountability and ever higher returns. Yet in the era of the traditional lender your home didn’t gain much value year on year… 1% per year or less. You cannot have a high risk, high return, no money down, no assets, low introductory rate with ballooning rates in the out years mortgage lending system and expect it to be stable.

Yet that was exactly what we enabled via Congress and the beasts of lending via the regulators, FHA, Fannie, Freddie and Ginnie.

They need to go, those beasts of being ‘nice’ and getting an unstable system.

It doesn’t work.

ajacksonian on March 26, 2010 at 1:58 PM

Cloward-Piven strategy?

shick on March 26, 2010 at 2:02 PM

Mike in GB on March 26, 2010 at 1:47 PM

Have you considered moving? I was laid off one time in my life. Within 30 days I was packed up and moving to a difference city for a new job.

I want to have sympathy for you. But if you say your company laid you off and there’s nothing else around, go somewhere else. And when the time comes that things get better, you can always come back.

angryed on March 26, 2010 at 2:22 PM

Cloward Piven indeed shick.

ted c on March 26, 2010 at 2:25 PM

75% of the 5 – 7 million mortgages that are 6 months delinquent right now were originally packaged as “prime”.

(See WaPo article: http://www.washingtonpost.com/wp-dyn/content/article/2010/03/11/AR2010031104866.html )

By the early 2000’s, the average “prime” loan did not fit the traditional definition of a prime mortgage. (20% down payment, fully documented income, fixed rate, low debt-ratio).

A 2008 study of 4 million foreclosures found that “low or no down payment” is the #1 common denominator in foreclosed mortgages… 51% of the 4 million foreclosures in that 2008 study were originally packaged as “prime” loans.

By 2000, a down payment was not called an “investment”, it was “an obstacle to home ownership”.

We have almost 12 TRILLION dollars in outstanding residential mortgage debt (that does not include apartments or commercial, 12 trillion is just 1 – 4 family residential mortgages). Half of that 12 trillion was originated from 2000 – 2008.

When a person can grasp the fact that the vast majority of mortgages that were done during that 8 year period when the market was completely over-heated were technically non-prime loans (even though they may have been called prime), then they will understand the scope of this problem and they will realize that this new program as well as all of the others programs cannot fix it.

The only answer is to let them go into foreclosure (or short sale) and let someone who who has a job and can afford the payment buy them at the true market value.

The chances of the gummint doing that? Zero.

Prolonging the pain and creating yet another moral hazard is all they are doing.

painesright on March 26, 2010 at 2:34 PM

Chase Bank doesn’t even have anything in place for this, and their call centers are getting bombarded – Because the Media led with this story today on a Friday, that hasn’t even been in acted yet. MSNBC and CNN are playing this in their news loop? Not helpful. Isn’t Jamie Dimon advising the President?

Dr Evil on March 26, 2010 at 2:59 PM

Have you considered moving? I was laid off one time in my life. Within 30 days I was packed up and moving to a difference city for a new job.

I want to have sympathy for you. But if you say your company laid you off and there’s nothing else around, go somewhere else. And when the time comes that things get better, you can always come back.

angryed on March 26, 2010 at 2:22 PM

Yeah, that card is in the deck but I’m going to hold it as a last resort. As I said, my wife is still employed full time at a job she actually likes & makes decent money, it doesn’t make much sense to uproot the whole family yet just because of my situation.

My last interview (part-time dispatching of busses for the city) was 2 weeks ago & I’m in background check again. I’m going to keep going here until I’ve exhausted every last possible avenue locally, I’m not ready to throw in the towel yet.

I was always recognized (though I never sought it) for doing above average work & I was rewarded with the max pay raises that were allowable. Years would pass between times I’d call in sick & I could be counted on to cover for someone else with a reasonable notice. I know those are things you can’t put on a resume, but you’d think those are qualities that would be desirable.

My post wasn’t any form of plea for sympathy… I just wanted show that some of us are actually trying here(regardless of success) & that this isn’t some kind of party time (at least not for me). I’ve seen & read posts about those that are actually enjoying “funemployment” & I resent them for it…

Mike in GB on March 26, 2010 at 3:12 PM

Good post, Ed. But what about the other side of the coin? Where are the calls from the conservative community for the banks to recognize all the bad paper on their books? If conservatives won’t demand honest accounting, then who will? We need mark-to-market accounting now, even if that means bank failures.

flyfisher on March 26, 2010 at 12:20 PM

Nice attempt at a strawman. However, this is not a coin with conservatives on one side and liberals on the other. Conservatives do demand honest accounting. They insist on it, almost by definition. Banks fail all the time. The stockholders suffer for lax management, but such is life.

The ‘coin’ model of reality is a canard.

percysunshine on March 26, 2010 at 12:43 PM

You either misunderstood me or you have no understanding of even basic principles of accounting and a flawed recollection of all the conservatives who called for an end to mark-to-market accounting. I am a staunch conservative who was saddened to see so many fellow conservatives taking to the airwaves and the net calling for an end to mark-to-market accounting, making the same arguments the liberals were making. I argued with people on this very site at the time. To so many it was as if hiding the problem behind bogus numbers would fix the underlying problems with the banks and their toxic asset problem. Many of my fellow CPA’s are still upset that FASB was pushed into going along with mark-to-myth ponzi accounting by Congress and many on Wall Street.

Those who have looked at the facts and thought it through understand the implications of what has been allowed to go on. We’ve created the mirage that the banks are healthy and that we fixed the toxic asset problem, when in reality we just papered over the problem to deal with another day, which will serve to prolong and exacerbate the pain.

Banks with POSITIVE equity are being closed by Sheila Bair’s FDIC. Some might wonder why they would do that. The answer is simple: that positive equity was a farce all along. The FDIC knows what the people don’t: our banks are still in real trouble. And almost no conservative commentators are talking about it. Perhaps they don’t really understand it. Who knows? I don’t expect liberals to discuss it, but I wish a few conservatives would shine the light of truth on bank insolvency. The American people need to understand it so they can rise to oppose backstopping more of their sure losses with tax dollars.

flyfisher on March 26, 2010 at 3:15 PM

It is a good plan for getting the unemployed to vote and to vote the “correct” was.

burt on March 26, 2010 at 3:27 PM

Make all lenders satisfy and close out the mortgages at a substantial loss. Then make the poor schlub homeowner pay the tax on the value of the forgiven balence. That way you can screw private mortgage holders too. That’ll show ’em!

Mr. Grump on March 26, 2010 at 4:30 PM

Remember the dummy who was saying during the campaign he would be paying her gas, food and rent bills when he took office? Perhaps she wasn’t that dumb. Boy are we screwed.

UnEasyRider on March 26, 2010 at 5:18 PM

Related parody: President Obama Answers Third Grader’s Letter (click image to enlarge) http://optoons.blogspot.com/2010/03/president-obama-answers-third-graders.html

Mervis Winter on March 26, 2010 at 5:55 PM

FORECLOSE ON THE WHITE HOUSE.
THROW THE BUMS OUT.

Cybergeezer on March 26, 2010 at 6:04 PM

FORECLOSE ON CONGRESS.
THROW THOSE BUMS OUT, TOO.

Cybergeezer on March 26, 2010 at 6:05 PM

“How dare the government do this? How dare they? This isn’t capitalism. It isn’t even communism. It is some upside down, messed-up mediocracy. …”

Obama’s supporters will give … answers to this argument. One, they will say that we need to provide a safety net to those less fortunate

And this is precisely the thing that rankles: conflating fortune with responsibility.

Because when it comes to buying a house, we’re not talking about one poor person and one rich person; we’re talking about two middle-class people with the same means, the same “fortune”, one who is responsible and the other who is irresponsible.

What rankles so much is that we can’t even comfort ourselves anymore with the idea that our hard-earned money is being stolen to ease the suffering of the less fortunate: it’s being given to the more fortunate, at least in terms of material possessions (e.g., the 2 SUVs, big-screen TV, 300% bigger house, …).

Like the lady says, that twists and perverts Marx into the following aphorism:

From each according to his level of thrift, to each according to his level of irresponsibility.

RD on March 26, 2010 at 9:42 PM