Housing: Obama Doubles Down On Failure
Meltdown: The president's barren jobs program has also forced him to go back to the drawing board on his mortgage program. His latest anti-foreclosure tonic merely doubles-down on failure.
Stubbornly high unemployment has made it harder for people to pay their mortgages, adding to the already record number of foreclosures plaguing the economy. The housing overhang, coupled with weak demand, has depressed home values further.
And now even more borrowers owe more on their mortgage than their home is worth.
Obama's answer is to open up his disappointing Home Affordable Refinance Program to all underwater borrowers, a growing class of debtors who, alarmingly, now account for nearly a quarter of the nation's homeowners.
HARP had been limited to those owing up to 25% above their home's value. But once people started the application process for a HARP refinance, they found out they owed more than 125% of the value of their home and couldn't qualify.
Of the 11 million homes underwater, fewer than 900,000 borrowers have opted to go through HARP since the program was rolled out in 2009.
Now the sky's the limit. And the administration thinks the broader plan will help the average underwater family save a couple hundred bucks each month on their mortgage payments.
"It's the equivalent of a substantial tax cut for these families," HUD Secretary Shaun Donovan said. But it's a potential tax hike for all Americans.
Say a borrower going through HARP decides that a few hundred bucks in monthly savings don't outweigh the tens of thousands of dollars owed beyond the value of the house. He walks on it anyway.
Guess who takes the loss? Taxpayer-backed Fannie Mae or Freddie Mac, that's who.
Under Obama's plan, only loans guaranteed by Fannie and Freddie are eligible. The failed mortgage giants have already cost taxpayers hundreds of billions of dollars, and the price tag just keeps climbing higher.
In effect, Obama is trying to keep people in homes they can't afford at the expense of homeowners who borrowed responsibly.
And it's just more of the same economic micromanaging. The modified plan does nothing to solve the core problem of sinking home values and rising household debt - which are both functions of a business world too anxious over Obama regulations to create jobs and raise wages.
The plan also invites more government meddling in the mortgage business, which is the chief reason homeowners are in the mess they're in in the first place.
It not only trashes loan-to-value requirements and other lending standards - applicants can miss a mortgage payment in the last year - but also requires banks to suspend appraisal fees, points and other closing costs normally charged during the refinancing process.
The new mortgage relief program comes on top of Obama's other failed mortgage plan - the Home Affordable Modification Program. It too was showcased by the White House to stop foreclosures by tinkering with mortgage terms and helping lower-income borrowers with their payments.
Obama first reckoned HAMP would help over 4 million homeowners. To date, only about a half-million people have enrolled in the program.
A study found most of the participants wind up re-defaulting. Treasury has tried to hide HAMP's problems, but it's an abject failure.
All these programs do is prolong the foreclosure mess. And yet such government programs, once put into effect, tend to take on a life of their own. It doesn't matter how much they cost or how well they work, they morph into something worse.
When this latest iteration fails to work, expect Obama's Brain Trust to cow banks into slashing mortgage principal, too.