Didn't He Just Say, "NO MORE BAILOUTS!"

We've now moved from the "Too Big To Fail" concept to the "Too Small To Fail" arena. I'm talking about all these distressed home owners who got themselves in over their heads by buying homes they never should have bought in the first place. So now it is supposed to become the problem of those who had better sense to bite off more than they can chew in the first place? So lets reward bad behavior once again with more reckless nonsense proposed by Obama himself using no less than a State of the Union address to sandwich it in without details but the details are now emerging.

Some people will do anything to get re-elected. Obama will do anything and everything he can to continue have the opportunity to spend the tax payer’s money on things that he has no business being involved in. This time it just reeks of “vote buying.” Isn’t that illegal you might ask? Not when you’re corrupt and a snake oil salesman residing in The People's House. We’ve seen his housing crisis fix schemes before. As strange as fiction, but true never-the-less, when asked about his past schemes to solve the problem here is what he said, “I’ll be honest - the programs we put forward haven’t worked at the scale that we hoped.” There’s that “hope” word again.

Similar to his non-shovel ready "shovel ready" projects I am assuming.

What I’m talking about is his “underwater mortgage” scheme anew just with a tweak here and there. I’ll be the first to say I have empathy, not sympathy, for those who were stupid enough to buy a house they really can’t afford in the first place. After all, the federal government itself was the one who told them that they deserved home ownership. What they forgot to tell them is the costs associated with owning your own home. It’s also interesting that a Democratic President (Clinton) got the country, and lenders, into this mess and it’s another Democrat trying to bail those folks out.

This whole fiasco has cost the tax payers a bundle just in the cost of having to prop up Fannie Mae and Freddie Mac for their bad lending habits. Now, if Obama has his way, it will cost us another big bundle on a crap shoot in his attempt to make it appear like he is the good guy riding into the rescue. Didn’t he just say in his State of the Union address, “There will be NO MORE bailouts.” If this isn’t a bailout, what is it? A reward for doing something stupid that a person should have never done in the first place? At whose expense is the next question? Take a guess again - the tax payers of this nation and to a certain extent all consumers.

The interesting thing is how Obama plans on paying for this boondoggle. The word is “tax.” He wants to tax the banks to help fund this potential time bomb estimated to cost between $5-10 billion, probably the same banks he voted to bailout in the first place. The FHA enters into this because he plans to have that federal insurer be the front man. Now FHA has already been buffeted severely during the housing crisis so he wants to “insulate” the cash strapped mortgage guarantee fund. That will be the cushion for any losses caused by those refinanced home owners who go ahead and default after the fat lady sings. How nice of him. Now who do you imagine the banking industry is going to pass that tax on to? The first guess doesn’t count.

Here’s what he told the crowd in Falls Church, VA day before yesterday, "If you’re ineligible for refinancing just because you’re underwater on your mortgage, through no fault of your own, this plan changes that. You’ll be able to refinance at a lower rate. You’ll be able to save hundreds of dollars a month that you can put back in your pocket.” There’s the carrot at the end of the stick for his “vote for me, I’m the good guy” scheme. How is "fault" going to be determined?

In case you wonder what an “underwater mortgage” is, it is when you owe more on your mortgage than the house is worth. This opens this scheme up to those who also have conventional mortgages when before it was available to owners whose loans are owned or guaranteed by Freddie and Fannie.

The devil here is in the details. Remember that these are distressed home owners. The Obama proposal has this really neat stream-lined loan application process understand. Very little documentation will be required to prove the house is underwater. Nor will have they have to prove they can, or cannot, make the payments. Peachy huh? Word out of the Whine House is that, heck no, they won’t even have to have an appraisal done. Submit a tax return to prove income? No way Jose. The caveat is that they would have to verify they are currently employed. Many of them already have a job and can’t afford to chew what they bit off. How employment verification is to occur is a gray area in the "fact sheet.".

Even the unemployed might qualify. Keep your chin up this is going to one on all of us I’m sure. In order for the unemployed to qualify the feds are going to require the banks to use the entire underwriting procedure. I just bought my house recently and have a question. Who is going to pay all those fees that are associated with the normal buying of a home?

Then I get more confused. Obama knows this is risky, at least as risky as loaning or granting our tax dollars to his green energy company buddies. This part of the scheme will have to be pushed through Congress so lotsa luck. It goes like this and is designed to minimize the risk. These are home owners who have little financial incentive to make the payments in the first place regardless of being given a lower interest rate as the carrot. If the homeowner has a loan-to-value of 140% or higher then they can write down the balance before qualifying for their loan. Write down or buy down? Think about the question asked. How will the loan-to-value be determined since no appraisal is going to be required?

Questions, always those pesky little questions about details. How are the banks going to be convinced to write down those loans if that is the case? The Chicago strong arm way? The administration failed to answer that in its “fact sheet” on the program or in Obama’s speech about the subject. Who then ends up paying for the write down? Obama likes to paint with the broad brush. It all sounds good - at first. I suspect after all this is said and done, if it gets done, is that the US tax payer will once again end up taking it in the shorts. Sad but true.

I can hear it now, "This article is full of hate!" "Hate" is when liberals don't like the message of the messenger. Not really but it is full of reality.

As Always,

The Frog Prince