The Amazing Growing Mortgage Relief Plan

The Obama administration rolled its mortgage relief plan this morning, which is intended to combat the growing number of home foreclosures. Thus less than 24 hours after signing its $787 billion economic stimulus plan, a costly new government program rises to the forefront. In perusing the details of this home mortgage rescue plan, a $50 billion price tag is being mentioned. While that doesn’t sound like a lot of money compared to recent spending bills, a billion seconds ago put us square in 1958, a billion minutes ago Jesus was alive, a billion hours ago our ancestors lived in the Stone Age and a billion dollars ago in Washington at current spending levels was just 8 hours 20 minutes ago. The Wall Street Journal reports that the actual plan will cost an initial $75 billion and:

“A total cost of the effort was not immediately clear, though it could eclipse more than $275 billion because of new commitments to Fannie Mae and Freddie Mac.”

So, in addition to the now-$75 billion initiative to help at-risk homeowners, the government will be doubling its preferred stock purchases in both Fannie Mae (FNM) and Freddie Mac (FRE) from $100 billion to $200 billion each. In addition, the White House is raising the imposed size limits for Fannie and Freddie from $850 billion to $900 billion each. Thus, the plan with a cost originally speculated to be around $50 billion, actually will cost more than five times that much! Of course, politicians would argue that much of this money is an investment and not just an outlay. In fact, the President is expected to say that ultimately, this will cost us (the taxpayers) nothing:

“This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.”

In this era of our political economy, it is probably too much to ask that the government allow market forces to find a bottom in housing. This morning saw the release of January’s housing starts numbers, which were well below expectations, a necessary development in a market over-saturated with inventory. Starts are down 56% from a year ago and 79% from the building peak three years ago. If the government feels compelled to do something in order to speed recovery along, additional tax credits for home buyers would have been more likely offered a better solution. What are we going to do as a nation if this spending does not work? An unappealing and likely option is to continue spending and taxing, taxing and spending.

Not to be insensitive to those who have unfortunately lost their homes because of job loss or some other circumstance, but where does this leave the people who played by the rules and bought a house with payments that they could afford? Do they now take the logical response, hide their money and stop paying their mortgage? We certainly hope not, but when will “Atlas Shrug” and say enough is enough?

Comments

[sabre_jenn:]

Obama:
"We will tax people who lived within their means, labeling these responsible people as "rich". People who live within their means must be punished severely...

CEOs who took advantage of the system and really are rich will receive write-offs and deductions (and handouts)

We will use the taxes we collect from the evil honest people and use them to bail out the stupid, the irresponsible and the CEOs"

Great plan Obama!

Feb 18 01:49 PM

[We the People:]

As the Administration proceeds with attempts to assist homeowners extreme care must be taken to avoid an enough worse problem. Any assistance must come with strict rules with respect to the qualifications and ability of the homeowner to make the payments under any loan restructuring plan, which was something ignored in many cases by the lenders that approved the now at risk loans in the first place. We the people demand it.

Feb 18 02:15 PM

[We the People:]

Fact - Our Government cannot correct the poor decisions made by all homeowners! Fact - Many people entered into home mortgage loans that they simply could not afford. Fact - Many lenders created an atmosphere and a loan package that tempted too many people into a false sense of ability to pay. At the end of the day, the facts are that if someone cannot afford the mortgage (and insurance and property taxes) they, sadly, must give up the home. The truth is the truth. 40 years of living through life's challenges taught me that lesson. Be responsible for your decisions and the healing can begin. Use whatever assistance comes now to face reality and if you cannot afford your home then leave it and start over. Your family and your country will respect you more and you will respect yourself as well. Reality decisions are never easy but always necessary.

Feb 18 02:34 PM

[bricki:]

I was a good boy and bought a house within my means, and eventually paid off my mortgage in full. So yes it rankles a little that others are being given help at my expense.

Those that have outstanding mortgages and are not below water are already benefiting via refinancing from reduced interest rates due to efforts by the Fed to drive down interest rates.

But then look at what the bankers got. This carries a far lower price tag and addresses the root cause of the problem. The devil of course is in the details, but at least it seems to be targeted to where it will do a lot of good.

Feb 18 02:34 PM

[Financial C...:]

What a joke! So the taxpayers need to help people who couldn't afford their home in the first place?? WTF.

Feb 18 02:41 PM

[Andy Singh:]

Far too many incentives for lenders and rather than incentivize them to help home owners, they may get greedy chasing incentive bonuses.

Feb 18 03:22 PM

[Inthemix:]

The best idea brought forth by anybody so far to stem this housing crisis is Jim Cramer. Writing at the street.com he says...

By Jim Cramer

About this article:
$75 billion for mortgages? Hysterical. Solves nothing. You want a plan? I have one, courtesy of my friend Matt Horween, who works closely with me every day and keeps me honest. Here goes: First, we have to cut the principal of the mortgage. It is a hopeless issue without that, and an interest rate modification is a pure loser. The new mortgage should be given for 80% of the appraised value; the government can hire an army of appraisers, as we need to put people to work anyway. That's the level where most people would be able to stay in their homes. That's the virtuous circle with a drying up of new and old supply. Second, the government has to offer 4% mortgages to everyone, so there is no moral hazard and so people can stay in their homes, which must happen if we are going to solve the...

We the taxpaywers own Fannie and Freddie. They have charged exhorbinant fees for years. Now is the time to turn tide...

Feb 18 03:40 PM

[PacificGate...:]

Are you responsible for your neighbor’s bad decisions?

pacificgatepost.blogsp...

Obama and Congress appear to think so. Is there any common sense in this program?

Feb 18 09:44 PM

[nobull:]

Another stupid welfare plan from an overrated Pres. So they bail out all the gamblers and liars. What next? How does this help the economy? Meanwhile the genius claims its "too expensive" to give a 15K tax break to new buyers which would actually bring money into the economy.

Feb 19 11:11 AM