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Obamanomics Worsens Home Foreclosure Crisis

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

WASHINGTON - President Obama flew to Las Vegas Monday to talk with distressed homeowners and see what Nevada's 13.4 percent unemployment first hand. While he was there, he had lunch at the lavish Bellagio hotel and gambling casino with 300 very rich people who gave him checks of between $1,000 and $35,800 for his re-election campaign.

He went out there to unveil yet another plan to rescue underwater homeowners, but also took a shot at Congress for being hopelessly "dysfunctional," vowing to take action on his own without them. His latest $447 billion jobs plan has run into a buzz saw of opposition in the Senate from Republicans and Democrats who think his tax plan won't be any more effective than his last one which blew more than $800 billion with little to show for it.

Of course, by dysfunctional, the president could have been thinking of Senate Majority Leader Harry Reid who said on the Senate floor last week that "It's very clear that private-sector jobs have been doing just fine; it's the public-sector jobs where we've lost huge numbers...."

Just fine? What planet is Harry Reid living on? (Actually, he lives here in the Ritz Carlton.) With a nationwide 9.1 percent jobless rate, 16 percent if you include Americans forced to work part-time or in temp jobs, the private sector employment picture is bleak.

But maybe Harry had a bad day and wasn't thinking clearly, especially after several Democrats broke ranks and joined Republicans in voting against the president on his jobs proposal.

When Reid brought up just one part of that bill for a vote last week, which would raise taxes to finance a $35 billion giveaway to the states to pay for government jobs, three Democrats flatly voted no: Nebraska's Ben Nelson, Arkansas's Mark Pryor and Connecticut's Joe Lieberman.

Obama neglected to say anything about those desertions in his remarks at the Bellagio.

"We can't wait for an increasingly dysfunctional Congress to do its job," he said. "Where they won't act, I will."

But after submitting his jobs bill to Congress, some of his advisers told him that even that's not going to get the economy working again until he does something about the 10 million Americans. who owe a great deal more on their mortgages than their homes are worth.

So Obama came up with a revised scheme to tinker with his earlier Home Affordable Refinance Program that he proposed in 2009. At the time, the White House said it would help up to 5 million people avoid foreclosure. In fact, almost three years later, it has helped relatively few people and the foreclosure crisis is worse than ever.

Obama's revision of that plan was worked out with the Federal Housing Finance Agency, which regulates the government's mortgage giants, Fannie Mae and Freddie Mac, who own or guarantee half the nation's mortgage loans. These two agencies were responsible for the lion's share of the subprime mortgage scandals that precipitated the crisis that plunged the economy into a recession.

In a nutshell, the White House plan waives a number requirements that had limited lending to borrowers who owed 25 percent more than their homes were worth, along with a number of fees, as well as legal liabilities the banks feared would leave them holding the bag on defaulted loans.

There will now be no limit on how much borrowers can owe; fees will be significantly reduced or eliminated, banks are absolved of all liability, and careful checks on income and credit are watered down.

Once again, the administration is making exaggerated claims about this latest plan, saying the average borrower could save $2,500 a year on the loans, though some other forecasters put the real savings around $312.

Little is said about who cannot participate in this plan. It doesn't help homeowners who have fallen behind in their mortgage payments. It only applies to those who obtained loans before June of 2009.

Obama's plan, with its waivers, caps and liberalized mortgage terms smacks of the very same problems that plunged the home mortgage industry and the financial sector into the mess it's in now. And some economists are sounding the alarm bell.

"He proposes to let homeowners, still up-to-date on their mortgages, refinance no matter how much the value of their home has fallen below what they owe and without cumbersome underwriters checks -- home appraisals, and rigorous credit and income checks," writes University of Maryland business economist Peter Morici.

"That is a prescription for more failed loans and another crisis in mortgage finance down the road or huge losses for U.S. taxpayers that can only be accommodated by even bigger deficits and printing money," Morici warns.

The one good reform that came out of the subprime mortgage debacle was the reinstitution of prudent lending standards and rules, including credit and income checks and protective downpayment requirements.

"Now the president proposes to throw those out the window and let folks who may earn $80,000 a year and owe $200,000 on their home qualify for lower interest mortgages without checking if they have been using the ATM machine to pay their mortgages or otherwise running up credit card debt and auto loans," Morici says.

Obama's campaign-timed plan is another prescription for rewarding bad behavior which got us into this mess in the first place.

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