Sense on Cents

My blood is boiling. Why?

The assault on the principles of free market capitalism is escalating with news that banks are poised to start reducing principal balances on certain mortgages.

I empathize with those who are strapped, but I have never felt more strongly on a topic than this principal reduction. Despite any and all bulls*%# put forth by those in Washington, the principal reduction program is an enormous escalation of the violation of moral hazard which our country sadly continues to embrace. I have no doubt it will expedite the development of a socialized housing finance system.

Do not think for a second that banks will take the hit on these principal reductions. Who will take the hit? Me and you. Those who have worked hard, saved, played by the rules, and taught our children to do the same. I have no intention of changing that approach and will work that much harder to instill these virtues in my children. That said, these virtues are under assault under this program. My children’s future is being negatively impacted as the costs of principal reduction will be pushed off on them.

The Wall Street Journal addresses this topic this morning in writing, New Plan to Cut Some Mortgage Balances:

The White House will announce Friday an expansion of its foreclosure-prevention efforts to include reducing mortgage loan balances for some borrowers, a controversial step that policy makers have long resisted, people familiar with the plans said.

The revisions, which will also include temporary help for unemployed borrowers, serve as a recognition that the administration’s foreclosure rescue plan hasn’t kept pace with the rising number of souring loans.

Under the plan, the Federal Housing Administration (LD’s edit: the FHA is you and me, boys and girls) will take on a much bigger role in government efforts to avert foreclosures by allowing some homeowners who owe more than their homes are worth to refinance into government-backed loans, according to people familiar with the plans. The FHA, which doesn’t make loans but insures lenders against losses, already faces rising losses on loans it has backed.

Reduced balances, reduced rates, and taxpayers assuming the risk via FHA-insurance is socialized housing. Yes, socialized!!

The WSJ continues:

On Thursday, lawmakers and a government watchdog sharply criticized the administration’s effort to modify loans at a congressional hearing. Neil Barofsky, the special inspector general for the government’s $700 billion TARP, warned that the program risks helping few borrowers and could instead spread out the foreclosure crisis over several years.

Kick the can down the road and have our kids pick up the tab. Screw that!!

Herbert Allison, an assistant Treasury secretary, said that the administration didn’t “fully envision the challenges that we would encounter” but defended the program as the first wide-scale effort that had moved banks toward substantially reducing payments.

Herb, stop the bulls*%#! If the government didn’t understand, then they were too stupid. More likely, the government, including you right here, has lied and continues to lie to the American public.

So far, around 170,000 borrowers have received permanent modifications, while another 835,000 are in a trial stage.

The administration also has struggled to launch a program designed to encourage banks to modify second-lien mortgages. The administration is expected to increase incentive payments under that program.

Increase incentive payments? Read that as more taxpayer bailouts for a failed banking system.

If you think you’re getting screwed. You’re right. You are. Your kids are getting screwed, as well.

Let’s revisit fall 2008 when one young woman was truly prescient:

This entry was posted on Friday, March 26th, 2010 at 8:24 AM and is filed under General, Moral Hazard, Mortgage Cram-Down, Mortgage Crisis, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.