Catastrophe - Dick Morris [43]
This reality makes the election of 2010 the most important off-year election since 1974 (when voters swarmed to replace Nixonian members of Congress in the wake of Watergate). The safety of our free-enterprise economy may well hang in the balance.
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OBAMA’S MORTGAGE PLAN THAT WON’T HELP YOU
Falling behind on your mortgage? Facing foreclosure? Lost your job? Worried about losing your house, too? Facing a personal catastrophe?
Don’t look to the Obama administration’s mortgage rescue plan for help—unless you’re one of the lucky few who manage to qualify under its arcane provisions.
Oh, the plan says you can get help to avoid foreclosure…unless:
You’ve lost your job
You owe more than your house is worth
You’re already in default
In other words, if you need help, you won’t get it.
Announcing his mortgage program in February 2009, Obama was quite expansive, claiming that it would help “up to five million homeowners who have seen the value of their homes decline to refinance their mortgages.”138
He also said it would “assist up to four million home owners to modify subprime mortgage loans so that payments would be no more than 31 percent of household income.”139
But the fine print sent quite a different message. The reality is, those who most need assistance will be left out in the cold by Obama’s plan.
About 27 percent of the 52 million home owners in the United States with a mortgage are now “under water”—that is, the amount of their mortgage loan is greater than the value of the property that secures it.140 Obama wouldn’t be much help to most of these 13.8 million families.141 His plan allows people to refinance or get help only if the total amount of their mortgage debt is less than their home’s value or no more than 5 percent above it.142
As MSN Money puts it, many homeowners today “owe so much more than their houses are worth that a lender would do better by foreclosing.”143
Most of the subprime borrowers fall into this category. The whole point of subprime lending was to help home buyers get loans without having to make a down payment—a system designed to encourage low-income families to buy homes. Indeed, Fannie Mae and Freddie Mac explicitly encouraged these potential buyers to take the plunge by offering to buy up their mortgages as soon as the ink was dry.
Now, however, Obama is suddenly looking askance at these very same borrowers, who merely did what Washington wanted them to do: buy a home with no money down.
When you buy a house without making a down payment, the mortgage debt is, by definition, equal to the value of the property. As soon as a recession causes the home to decline in value, it automatically puts such a home “under water”—and thus ineligible for Obama’s so-called mortgage rescue plan.
And what about those who have lost their jobs in the recession? In order for an applicant to qualify for reduced mortgage payments (through a cut in the rate, a federal subsidy, or a prolongation of the period of the mortgage), Obama’s program requires that the applicant be able to afford the new mortgage. Its definition of affordability is that the borrower have to pay no more than 31 percent of his income each month to service the debt.
If you can’t pay the freight—because you lost your job or for any other reason—you’re out of luck. As Nicolas Retsinas, the director of the Joint Center for Housing Studies at Harvard, notes, “You can modify all the loans you want, you can try to refinance loans, but if you don’t have money coming in through your pay [like a] weekly paycheck, you can’t pay anything.”144
That’s simple enough that it shouldn’t take a Harvard professor to explain it—yet it seems lost on the Harvard-educated Barack Obama.
Just to make sure anyone who is jobless doesn’t sneak in under the wire, Obama requires applicants for relief to “provide their most recent tax return and two pay stubs as well as an ‘affidavit of financial hardship’ to qualify for