Heartless

Mean Street: Why Obama’s Homeowner Rescue Is Bound to Fail
Posted by Deal Journal

Is there anything more heartless than foreclosing on a home and throwing a family out on the street? How about taxing the family next door into penury (extreme poverty; destitution) to pay for the reckless borrowing of its neighbors?

Welcome to the Obama Homeowner Affordability and Stability Plan — a complicated wealth redistribution scheme dressed up as a cure for the nation’s housing woes.

It is almost certainly bound to fail.

Now, there is no doubting that Obama’s heart is in the right place. With foreclosures at record highs, the American white picket fence dream is crumbling.

And the impulse of any caring President must be to do something, almost anything to keep the dream alive.

But the experience of politicians tinkering with the U.S. housing market is not a happy one. Fannie Mae and Freddie Mac, anyone?

Real estate is simply too complex to be manipulated by anything but the “invisible hand” of the market.

Disagree?

Just read the four page White House Executive Summary with its laundry lists of programs, federal and state bureaucracies, conditions and caveats.

It’s confusing stuff even for the average MBA. How will it be digested by the average low-income subprime borrower?

Here’s the loan modification process:

“For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38% of his or her income. Next the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent…”

Again, that’s the Executive Summary.

Can you imagine the chaos of a loan modification meeting between a subprime borrower and a bank officer?

Multiply that a few million times — and that’s the $75 billion “homeowner stability initiative.”

That’s if Obama is lucky enough to find the 3 to 4 million “responsible homeowners” he thinks would qualify or want to qualify for the government moolah.

But he’s almost certainly overestimating the number of “responsible homeowners” out there.

Those 3 to 4 million “responsible homeowners” are actually “credit challenged” borrowers. They put down very little money to purchase homes at very inflated prices.

Not only do they hold no equity in their homes today. Even with a modified loan, there is only a remote prospect of building equity in the future.

For most, economic self-interest says to walk away from the house rather than carry a modified mortgage that will suck up 31% of monthly income.

Truth is, many of the “credit challenged” borrowers won’t even get to running the numbers. They simply will have no interest in sitting down with a bank officer and going through pay stubs and tax returns.

Income verification? Are you kidding? That’s why many took the subprime mortgage in the first place.

That millions of homeowners were and are “irresponsible” is a harsh truth that Obama can’t really talk about.

In his America, the Obama housing plan is one neighbor helping another who is simply down on his luck. If only his America were real.

Then maybe his program would actually work.

http://blogs.wsj.com/deals/2009/02/18/mean-street-why-obamas-homeowner-rescue-is-bound-to-fail/

Hat tip: Len Salonsky

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Response: Marty Dillian
The Obama stimulus plans (with more to come) are nothing more than a socialist redistribution of money from those who are struggling to those who are struggling. Essentially, you are being asked to pay for your mortgage, and to pay for your neighbor's mortgage, without little regard to their lifestyle or yours, with no concern for your children's needs, or your parent's needs, without regard to your future employment prospects, your future financial needs, that you have been trying to prepare for. These are not stimulus plans, but 'kiss of death' plans. Don't be so naive as to think the motives are well-intended or the outcome unintentional.

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Response: Dick Doubek
HOW TO EXPLAIN THE STIMULUS BILL

Shortly after class, an economics student approaches his economics professor and says,

"I don't understand this stimulus bill. Can you explain it to me?"

The professor replied, "I don't have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I'll be glad to explain it to you." The student agreed.

At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool. They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end, and fill your bucket with as much water as you can." The student did as he was instructed.

The professor then continued, "Follow me over to the shallow end, and then dump all the water from your bucket into it." The student was naturally confused, but did as he was told.

The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool. The confused student asked, "Excuse me, but why are we doing this?" The professor matter-of-factly stated that he was trying to make the shallow end much deeper.

The student didn't think the economics professor was serious, but figured that he would find out the real story soon enough. However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad.

The student finally replied, "All we're doing is wasting valuable time and effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before, so all you'll really have accomplished is the destruction of what could have been truly productive action!"

The professor put down his bucket and replied with a smile, "Congratulations. You now understand the stimulus bill."

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Posted February 19, 2009 09:15 PM
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