Sense on Cents

Charity is one thing. Throwing good money after bad is an entirely different can of worms.

Is the Obama administration’s housing policy trying to be charitable in support of those who have truly fallen on hard times and need government assistance, or is it more redistributing wealth to those who made unwise financial decisions from the outset? Do Obama and team know the difference?

I consider myself a charitable soul, but I have always felt that the Obama approach to housing is largely throwing good money after bad and would be ineffectual. Evidence to date supports my premise. In my opinion, Obama’s approach is, once again, a veiled means to redistribute wealth. Don’t believe me? Let’s navigate . . .

The Wall Street Journal highlights the other side of the Obama administration’s policy this morning in writing, Foreclosure-Prevention Program Struggles to Make Impact:

The Obama administration has argued that HAMP is working. But the number of people being helped is “modest” in comparison with the scale of the problem, said Elizabeth Warren, the panel’s chairwoman. She conceded, however, that it was unclear how many foreclosures the government should try to prevent, given that many households are in homes that they can’t afford.

HAMP loan modifications typically leave borrowers still heavily burdened by debts from second mortgages, car loans and credit cards, the panel noted. The typical household with a HAMP modification still must devote 59% of total income to debt service. “Most borrowers who proceed through HAMP will face a precarious future,” the report said, adding that “many borrowers will eventually redefault and face foreclosure.”

Republicans are attacking the administration for what they say is the unfairness of HAMP. At a hearing of the House Financial Services Committee Tuesday, Rep. Jeb Hensarling, a Texas Republican, estimated that 94% of American households own their homes free of mortgage debt, are current on their mortgage payments or are renting. “They are being asked to bail out the other 6%,” Mr. Hensarling said. “It’s a policy that says to the citizens who work hard, who live within their means, who save for a rainy day: You are a sucker.”

Rep. Barney Frank, a Massachusetts Democrat who is chairman of the committee, retorted that bailouts of financial institutions began under the Republican administration of President George W. Bush. Mr. Frank conceded that borrowers who extracted lots of cash from their homes during the boom don’t deserve help, but he urged banks and the government to do more to help homeowners who have lost their jobs.

Are an overwhelming number of Americans ‘suckers’ and getting a poorly constructed federal bailout program jammed down our throats by an administration intent on redistributing wealth? Let’s listen to the wisdom of our friends at 12th Street Capital who write this morning:

Forget what the Texas Republican Rep had to say, for the first time in all of this government debate I have heard someone (and Barney Frank at that) say “cash-out refi borrowers don’t deserve help”. Do you think he knows that approximately 75% of subprime loans back in ’05 through ’07 were cash-out refi? This probably won’t get any traction but I’m telling you it is about time one of the harsh realities of this whole mess comes to light.

The color from 12th Street Capital is a healthy dose of ‘sense on cents.’ Without the reality of the large number of cash-out refis being widely exposed and publicized, Hensarling is right: we are a bunch of suckers.

In regard to the other Congressman, is Barney Frank actually starting to get some religion here? Maybe he is reading Sense on Cents.

LD

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This entry was posted on Wednesday, April 14th, 2010 at 10:10 AM and is filed under General, Housing Crisis, 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.