In what appears to be the next step in the path of increasing federal government control over the US economy, the Obama Administration is preparing a new initiative to order banks to slash or eliminate the monthly payments due to banks from unemployed borrowers. This crass political maneuver by the Obama Administration is clearly intended to get unemployed Americans to vote Democrat in November 2010 to keep the free money gravy train going. With this proposal, America may have truly reached the unsustainable age of free money as the new rules “could allow a borrower to make no payments at all”. Apparently the idea that a contract, signed by free people, should be binding on both sides is now losing steam in America:
The Obama administration plans to overhaul how it’s 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 their unemployment insurance, for up to six months. In some cases, administration officials said, a lender could allow a borrower to make no payments at all.
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.
The new mortgage “relief” plan also intends to push banks to cut principal from first mortgages and cancel second mortgages altogether with new “financial incentives” to lenders who “reduce the principal owed on a loan”:
For one, the government will for the first time provide financial incentives to lenders that cut the balance of a borrower’s mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if it this amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years as long as the homeowner remains current on the loan.
Until recently, administration officials had been reluctant to encourage lenders to cut homeowner’s principal balance, worrying this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.
Second, government will double the amount it pays to lenders that help modify second mortgages, such as piggyback mortgages, which enabled home buyers to put little or no money down, home equity lines of credits. These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.
Considering the absolute tragedy that the Obama Administration’s interventionist mortgage policies have been to date, with foreclosures spiraling upward and new home sales at an all-time monthly low in February 2010, the additional Obama interventions into the mortgage market announced this evening seem like more of the same counterproductive policies.
Regarding the amount of increased deficit spending to be caused by the new mortgage initiative, the Washington Post and Obama Administration have nothing to say, claiming that no new spending will be required. Indeed, the Washington Post has no specific mention of the actual cost of this new plan, as WaPo simply parrots the Administration line that there is “no new taxpayer funds will be needed” because the money already paid back into TARP by banks will be used again instead of used to retire debt of the United States, as the TARP legislation requires:
The new initiatives are expected to take effect over the next half year and will be funded out of money remaining in the $700 billion bailout program for the financial sector, administration officials said. They said no new taxpayer funds would be needed.
Considering the success the Obama Administration has just had using a clearly fraudulent claim that Obamacare is “one of the biggest deficit-reduction plans in history”, this move to avoid a damaging admission that Obama’s plans will actually spend TARP money that is now slated to retire federal debt by simply claiming that “no new taxpayer funds will be needed” without any pesky details is simply the latest dodge on deficit policy by the Obama Administration. Sadly, the establishment media appears to be uncritically accepting this latest misleading Obama deficit claim, just as the prior Obamacare deficit claim was seconded and endorsed by the media.
However, the largest threat to the American workforce and overall economy from this new mortgage initiative is the powerful incentive created for individual Americans to both become and/or remain unemployed to obtain the government relief from making mortgage payments and the additional incentive created for borrowers to default on their loans and obtain relief from the principal amounts due on their loans. Sadly, the prediction from the right that the Obama Administration would use repaid TARP funds as a “slush fund” leading up to the November 2010 elections appears to be coming true, and the federal spending which reduces or eliminates monthly mortgage payments for the unemployed if the first major payment from the “slush fund” this election season. One can only hope that the strength and vitality of the American economy can overcome the ongoing, destructive moves to expand the federal government’s control of the economy.
UPDATE: Apparently ordering the banks, car companies, health insurance companies, doctors, hospitals, medical device manufacturers, energy companies and states around is not enough for the Obama Administration, as they apparently also ordered the Washington Post to completely rewrite the headline of the article cited above, and WaPo, sadly, agreed. First, here’s the accurate headline chosen by the nominally “independent and objective” newspaper Washington Post:
“Obama administration to order lenders to cut mortgage payments for jobless”
That is an accurate headline as it actually describes the new initiative planned by Obama. Now, this morning, after some scolding by the Obama Administration, the Washington Post editors trashed the old headline, and replaced it with an Axelrod-drafted left wing talking point:
“Obama readies steps to fight foreclosures, particularly for unemployed”
The actual policy planned by Obama, of course, hasn’t changed. However, now millions of Americans will see that new headline, a pure dollop of spin directly from the Obama Administration, instead of the accurate former headline. Indeed, the word “order” now does not appear anywhere in the article. This latest manipulation of the establishment media by the Obama Administration is just another piece of evidence that proves everyday Americans can no longer trust the media to accurately report upon the activities of the Obama Administration.
Sadly, the tens of millions of hardworking Americans who actually pay their mortgages, on time, every month, are once again going to get the short end of the stick from the Obama Administration, as noted in a moment of candor by the NYT:
The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.
The NYT also reports upon the risky plan of the Obama Administration to use the Federal Housing Authority to engineer principal reductions in mortgages, which, of course, creates a serious systemic risk of the collapse of the FHA should housing prices not rebound. Once again, the Obama Administration is laying off future risk on the American taxpayer to obtain short term political benefits now:
The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.
About 11 million households, or a fifth of those with mortgages, are in this position, known as being underwater. Some of these borrowers refinanced their houses during the boom and took cash out, leaving them vulnerable when prices declined. Others simply had the misfortune to buy at the peak.
Many of these loans have been bundled together and sold to investors. Under the new program, the investors would have to swallow losses, but would probably be assured of getting more in the long run than if the borrowers went into foreclosure. The F.H.A. would insure the new loans against the risk of default. The borrower would once again have a reason to make payments instead of walking away from a property.
Many details of the administration’s plan remained unclear Thursday night, including the precise scope of the new program and the number of homeowners who might be likely to qualify.
One administration official cautioned that the investors might not be willing to volunteer any loans from borrowers that seemed solvent. That could set up a battle between borrowers and investors.
This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.
Another helpful addition to the WaPo article ordered by the Obama Administration is this quote from the National Community Reinvestment Center (“NCRC”), which, of course, is a hard left organization that is pushing for all the same government controls over the banks and elimination of “principal” amounts due on mortgage loans that Obama wants:
“We would prefer to see a required principal forgiveness program. But this is helpful,” said David Berenbaum, chief program officer for the National Community Reinvestment Coalition, a nonprofit housing group. “This is another tool that will help consumers weather the crisis.”
Of course, the WaPo whitewashes who the NCRC really is by calling them simply a “nonprofit housing group.” Unmentioned by WaPo is the extreme left wing posture of the NCRC and their long term alliance with none other than ACORN, as the NCRC and ACORN have been working together for years to bring “reform” to the housing industry.
A brief ride in the way-back machine (to Winter 2000) uncovers some truth about the NCRC: they were the key force, indeed the “umbrella group” behind the left wing group’s use of Clinton to change the Community Reinvestment Act (“CRA”) to force banks to make “no money down” loans to unqualified borrowers, which, of course, led us to the housing crisis today that Obama’s new initiative is designed to “fix”:
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.
The National Community Reinvestment Coalition—a foundation-funded umbrella group for community activist groups that profit from the CRA—issued a clarion call to its members in a leaflet entitled “The New CRA Regulations: How Community Groups Can Get Involved.” “Timely comments,” the NCRC observed with a certain understatement, “can have a strong influence on a bank’s CRA rating.”
The Clinton administration’s get-tough regulatory regime mattered so crucially because bank deregulation had set off a wave of mega-mergers, including the acquisition of the Bank of America by NationsBank, BankBoston by Fleet Financial, and Bankers Trust by Deutsche Bank. Regulatory approval of such mergers depended, in part, on positive CRA ratings. “To avoid the possibility of a denied or delayed application,” advises the NCRC in its deadpan tone, “lending institutions have an incentive to make formal agreements with community organizations.” By intervening—even just threatening to intervene—in the CRA review process, left-wing nonprofit groups have been able to gain control over eye-popping pools of bank capital, which they in turn parcel out to individual low-income mortgage seekers. A radical group called ACORN Housing has a $760 million commitment from the Bank of New York; the Boston-based Neighborhood Assistance Corporation of America has a $3-billion agreement with the Bank of America; a coalition of groups headed by New Jersey Citizen Action has a five-year, $13-billion agreement with First Union Corporation. Similar deals operate in almost every major U.S. city. Observes Tom Callahan, executive director of the Massachusetts Affordable Housing Alliance, which has $220 million in bank mortgage money to parcel out, “CRA is the backbone of everything we do.”
In addition to providing the nonprofits with mortgage money to disburse, CRA allows those organizations to collect a fee from the banks for their services in marketing the loans.
Umbrella group NCRC and others, of course, are in deep, passionate love with the Obama Administration, as Obama has appointed one of their ranks to run Housing and Urban Development (“HUD”) and doubled down on the Clinton-era CRA changes to increase the funneling of fees to left wing pressure groups. The NCRC release shortly after Obama’s Inauguration is indisputable evidence of the sad reality that present federal mortgage policy has been hijacked by hard left interest groups:
The stars and planets may be in nearly perfect alignment to support the cause of community-based organizations in their fight for those who reside in low- and middle-income neighborhoods.
Barack Obama, a former community organizer, is the president of the United States. “Can we really believe that?” asked Rep. William Lacy Clay (D-MO) to loud cheers at the 2009 National Conference of the National Community Reinvestment Coalition.
Obama has chosen to head the Department of Housing & Urban Development Shaun Donovan, a former community organizer in New York City, who became that city’s housing czar.
Donovan reports HUD has been given “a seat at the big people’s table” as the Obama administration grapples with the foreclosure crisis and the effort to unclog the nation’s credit markets.
To participate in the push for economic recovery, HUD will get $13.6 billion under the economic stimulus bill—the $790 billion American Recovery & Reinvestment Act—including $4 billion for energy-efficient modernization and renovation of public housing, $2.5 billion for a special allocation of HOME funds to increase the preservation and production of tens of thousands of units of affordable housing, $2 billion for 12-month funding of Section 8 project-based housing contracts, $2 billion to mitigate the impact of foreclosures through the purchase and rehabilitation of foreclosed properties, $1.5 billion to prevent homelessness and $1 billion in community development block grants that will be distributed to state and local governments to spend on their own priority projects.
Donovan was loudly applauded by an audience that comprised myriad friends from his community organizing and housing advocacy days when he pledged that HUD will “be a partner and not an impediment” to the work of community-based organizations and that the department will make a major effort to promote and enforce fair housing laws.
It is way too early to predict whether the goodwill that the Obama administration has brought to the table will bear fruit in low- and middle-income communities, but the good feelings evident at the NCRC gathering have long been missing from scene.