Obama's Grand Bargain Is No Bargain!
Obama's Grand Bargain Is No Bargain!
Why is Obama's Grand Bargain No Bargain? Take a close look at the bargain and you will see why.
Obama wants to help responsible families refinance, here is what he proposes:
1. Expanding eligibility for refinancing at today's low rates.
This proposal would allow homeowners that have a loan that is not insured by Fannie Mae or Freddie Mac to refinance their home loan even though they are underwater. A great idea on paper, however, how do you force lenders to lend to borrowers who are upside down and are more likely to default even after they lower their payment? Massive defaults on loans that were secured by homes that were worth less than what was owed on them is how this whole mess started remember?
2. Helping homeowners rebuild equity.
This proposal would allow homeowners to refinance into a loan that has a lower rate, however, the payment would progressively increase back to their original payment amount so that the loan is paid off faster and thus the homeowner builds equity faster. Ok, I am not sure where to start with this one, you refi to lower your payment and it escalates back to your old payment so you can build equity? What ever happened to rebuilding our economy and thus the value of homes increases and we can build equity that way! How about we focus on what can and will recover our economy organically like Economic Recovery? We Need It Now! This Just Makes Sense! The idea that you will help homeowners rebuild equity by escalating their home loan payments is massive foreclosures waiting to happen! Homeowners do not default and ultimately lose their homes because of any amount of equity they lose their homes to foreclosure because their monthly mortgage payments have increased higher than they can afford to pay and/or because they lost their job and they are underemployed!
3. Helping more homeowners stay in their homes.
This proposal would extend the forbearance program for unemployed homeowners that was originated by the Obama administration that allows unemployed homeowners up to 12 months of forbearance, which means they don't have to make their payments while they look for work. The administration also claims that because of their leadership on this matter, Bank of America and Wells Fargo have followed suit and are now providing this to their borrowers as well. This is exclusive news about Bank of America and Wells Fargo that their borrowers would like to hear! Again, we are back to the fact that if we had an economy that was recovering organically and not with all the smoke and mirrors of Quantitative Easing which has left interest rates artificially low, we would not have tens of millions of Americans out of work and this would not be needed! What happens after the forbearance runs out? What happens when the homeowner finds a job that underemploys them? What happens if they move up in employment position and income?
4. Helping our housing market and getting construction workers back to work.
This proposal would sell thousands of foreclosed and vacant homes to investors who would buy them, fix them up and rent them back out. Also $15 billion of your tax dollars would be spent to put construction workers back to work rehabbing homes and businesses. Fannie Mae and Freddie Mac are currently selling homes to investors that are fixing them up and renting them back out again. Two possible problems with this, remember the wealthy Americans that are supposedly the 1%? This makes them wealthier and not the homeowner. Second, what about the small investor who is a small business and could benefit from buying, fixing up and selling these homes to entry level homeowners who are being shut out of the current market due to lack of inventory created by these homes being rented? Is it better for the economy to rent these homes or sell them? Sell them! Also, $15 billion of your tax dollars, we do not need another dime of our tax dollars spent by the government!
5. Protecting homeowners with a Homeowners Bill of Rights.
This proposal, bullets points below, is designed to protect homeowners, so can we get rid of Dood/Frank?
- Simple, easy to understand mortgage forms
- No hidden fees and penalties
- No conflicts of interest
- Assistance for at-risk homeowners
- Safeguards against inappropriate foreclosure
6. Investigating mortgage misconduct.
Yeah! Wait, what about the rating agencies and the Wall Street operators that caused this mess?
One last comment, the unwinding of Fannie Mae and Freddie Mac is a very bad idea. The proposal is that we get private capital (aka Wall Street) more involved in providing the market and funding for mortgages. Think about this for a moment, the rationale behind this proposal is that Fannie Mae and Freddie Mac are operating under failed business models. Here is the problem with that assertion, these business models were created under Congressional oversight. During the Clinton administration and through the Bush administration, the drive to increase the percentage of Americans who enjoyed homeownership forced lenders to explore ways to qualify those borrowers who could not otherwise qualify for home loans. In fact, the federal government sued some of the largest home lenders for not lending a large enough percentage of their total number of loans to less qualified borrowers. Some of these settlements required that lenders figure out a way to increase these numbers so some could claim victory for the middle class. Here is what happened, Congress put enormous pressure on Fannie Mae and Freddie Mac to lend to those that simply did not qualify for Fannie or Freddie guidelines and so they were forced into insuring sub prime mortgages which was never part of their business model. When the market collapsed, these government sponsored entities lost a great deal on money and ultimately failed. It was not however, due to Fannie and Freddie's business models! Unwinding them provides political cover for those who should have no cover, period! Here is a question no one seems to be able to answer, if Fannie and Freddie go away and private capital (aka Wall Street) is responsible for promoting homeownership, providing a market and funding for mortgages if things turn negative again, what or whom keeps private capital from quitting thus plunging us into another great depression?
As always, thanks for listening!
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