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Breaking down Obama's housing plan
President Barack Obama makes remarks on the home mortgage crisis at Dobson High School in Mesa, Ariz.
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Bob Moon: You work hard, and you're paying your mortgage, so why should the guy down the street get a break? Now that he's in over his head and facing foreclosure? Don't worry, says President Obama. The new mortgage-rescue plan he unveiled today won't reward folks who bought a home that they knew from start they couldn't afford. And for everybody else who owns a home, perhaps you could call this the "nine percent" solution -- keeping your neighbor from pulling you down, along with him.
PRESIDENT OBAMA:One study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as nine percent.
That's one of the primary goals of the plan -- to put a floor under sagging home prices. But as Ronnie Radbill reports from Washington, the fix itself comes at a steeper-than-expected price tag -- an estimated $75 billion.
RONNI RADBILL: President Obama says America faces a crisis unlike any we've ever known. Speaking today outside Phoenix, Ariz., he says the plan will help four million homeowners facing foreclosure. The government will do that by giving lenders matching funds to cut monthly payments.
President Obama: This plan will not save every home but it will give millions of families resigned to financial ruin, a chance to rebuild.
The plan will help another five million borrowers, who owe more on their mortgage than what their home's worth, to refinance, a move that until now has been quite difficult.
To get that help, mortgages need to be owned or guaranteed by Fannie Mae and Freddie Mac. Under the plan the two mortgage giants will receive the cash they need to assure there's plenty of available credit.
President Obama: Through its existing authority Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down.
But, what about the majority of Americans who are up to date on their payments? Tom Lawler a former Vice President of Fannie Mae says the plan does nothing for them.
TOM LAWLER: What about the people who don't get that help but also make their payments on time? I think that'll be an enormously unpopular element.
Treasury Secretary Timothy Geithner says homeowners should experience some relief quickly, after the plan goes into effect March 4th.
In Washington, I'm Ronni Radbill for Marketplace.
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Interesting point of views. Where are the lessons learned from previous recessions/depression? How do we and future generations learn if there are no consequences for our decisions? I take on a pile of debt, live the high life while times are good, don't prepare for the bad times, then when the bad comes some politician (through the full power of the state, FORCE) takes some of my neighbors money and gives it to me. How is that "fair"?
Those types of "fair" societies cover the earth with misery. Examples- The former Soviet Union, Cuba, Zimbabwe and, if the trend continues, USA.
Prices will go to their natural level and all the government will do is distort the market and reduce our productivity as a nation. Great quote-
"The ultimate effect of shielding man from his folly, is to fill the world with fools."
If your neighbor's house gets forclosed on it will drive your property value down especially if there are several forclosures in your neighborhood and especially if the houses sit vacant for any period of time. By pitching in to help your irresponsible neighbor, you're actually helping yourself. Maybe we were all a little irreponsible when we decided to drink the tax-cut/deregulation koolaid. With adequate funding our watchdog agencies could have been properly staffed and could have sounded alarm bells when they noticed that banks had drastically lowered their lending standards.
The plan encourages home owners who can afford their mortgage payments but realized their property values has dropped to intentionally default. In fact, this practice is already being used; home owners are missing their mortgage payments for 2 consecutive payments (60 days) knowing that banks will send them the form to fill in to work out a deal. Good news for those who are good at playing the system; bad news for the responsible tax payers.
DG
Jimmy Skoda:
The current response is anything but slowly.
Have you seen the Federal Reserves balance sheet and compared it to last year? It has grown from around 500 billlion to around 2 trillioin. The difference is pumped into economy.
There are lot other stats which you can see, to figure out the money being printed. i dont want to go into details.
Rest assured, because they are going to build another bubble and a bigger one.
What the fed did wrong is they left the priming on too long after 9/11.
Then dropped it too fast.
This stimulus, if done right, should bring the economy down *gently* (because we are not done going down yet) then prime it back up. Then slowly let go and let the economy do it's own thing.
Kye's Friend:
You anology of people slipping into water is not correct.
The right anology is: People looked into water, then looked around lied to rational people around saying they knew swimming. And then they jumped. Once in the water, they remembered they dont know the swimming and want people on the shore to risk their lives, so that idiots who jumped can be saved.
Jimmy Skoda:
I have to disagree. You dont build an economy by pumping cheap money into economy. Remever 2000, when tech bubble burst. What was the response by FED back then. Pump cheap money and build a housing bubble. When any bubble bursts, the consequences are not pretty. You cant have free lunch. You have suffer the losses. That is the nature of bubble. You need flush out the excesses of bubble.
Instead what you are suggesting is reward the people who created the bubble and pump more cheap money into economy, so that we can have another bubble. 5 years from now when next bubble bursts, you will be saying same thing. Lets save economy by pumping more money.
@gbgb
This isn't about the ARM holders anymore.
This is about saving the economy. If the sub-prime holders exist in their own bubble and their numerous foreclosures did not affect the economy, then yes, let them rot. Unfortunately, I'm sure you've seen, in the past 6 months, the foreclosure problem affects everyone from home builders to automakers to state government and schools. This deal isn't about putting a Lexus in a sub-prime's house. This is to prevent any more foreclosures. If it takes $1000 more a month, then that's better than 1,000 more lost jobs a month.
What am I doing? Stimulating the economy. Paying my fixed rate mortgage. Buying I-Bonds.
What is BS statement is this "helping foreclosure helps everybody". How? By rewarding the irresponsible. why should people who lied about their incomes and bought homes using ARM and option ARMs be helped. How will this help people who didnt participate in the real estate and are renting other than paying taxes to bailout these losers?
The only thing that helps is to let house prices adjust to a level where the incomes can support.
Where were you all the experts, when real estate was bubbling. Where was your head buried then.
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