>>Obama’s Continued War on the Market
Posted March 2, 2010on:
President Obama continues to hold the freemarket down from doing what it does best and that is get the economy back on a sound footing and going again. Government created this economic crisis with its meddling and Obama is continuing to meddle by throwing money at a problem when we are out of money. How long before someone does something about this President? The Democrats are vilifying Sen. Bunning for refusing to allow a bill extending unemployment benefits to go thru because he has finally heard the people and gotten the message that there is no more money, but our President has not. So using TARP funds which he and the Treasury secretary alone controls he is prolonging the agony of the country.
President Obama may be amending his loan modification program to make it even more difficult for defaulting homeowners to be foreclosed upon. The Times states:
The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.
That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.
Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.
To be fair, the effects of this program may be minimal, with some interpreting the ban to be more about PR than anything substantive:
Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”
…The Mortgage Bankers Association said its members were already doing what the administration was considering.
“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.
Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.
Regardless of the impact however, this potential loan modification addendum adds insult to the injury of an already wrongheaded and destructive policy, and will only prolong the pain in the housing market.
The reasons for the woes in housing are quite simple. Banks extended mortgages to borrowers that were poor credit risks, and many borrowers took out mortgages that they shouldn’t have either out of speculation or profligacy. That the depression is throwing people out of work and keeping many jobless exacerbates the problem, in that unfortunately many who could have reasonably expected to afford their homes now cannot given their lack of sufficient cash flow. Of course, truly prudent buyers might have saved to purchase their homes outright with cash.
In any event, to fix the housing market requires these folks to be foreclosed upon. Keeping homes off the market artificially suppresses supply, propping up prices that already necessarily needed to fall, as house prices rose to unjustifiable levels due to the Fed’s pump priming, the CRA and the surge in demand these two factors engendered. To keep people in homes they cannot afford besides creating moral hazard and distorting banks’ balance sheets also has the effect of keeping worthy buyers from purchasing homes at decreased prices. It further prevents apartment owners from renting out their excess inventory to underwater and/or insolvent former homeowners. The effects of the government intervention in the housing market are amplified significantly when one considers the volume of securities backed by mortgages not being adequately serviced.
Government has no business in throwing this market into disequilibrium. But President Obama believes otherwise. In campaigning for Harry Reid and while announcing a further imprudent measure to provide $1.5 billion in mortgage relief in five states hit acutely by the downturn, Obama had this to say about the housing market:
“Now, government has a responsibility to help deal with this problem. Government can’t solve this problem alone. We got to be honest about that. Government alone can’t solve this problem. And it shouldn’t…It can’t stop every foreclosure, and tax dollars shouldn’t be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis. But what we can do is help families who’ve done everything right stay in their homes whenever possible.”