MORTGAGE PLAN IS REWARDING BAD BEHAVIOR
February 24, 2009
President Obama's massive mortgage bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more house than they could ever afford, says Lawrence Kudlow, host of CNBC's "Kudlow & Company."
In fact, President Obama's so-called mortgage-rescue plan amounts to $275 billion in new debt that will have little if any lasting impact on deeply corrected housing prices or the mortgage-default problem. Yet, there are no safe-harbor provisions to protect mortgage servicers against lawsuits if agreements are broken, says Kudlow:
- Banks that have whole loans can choose to modify them if they want, but 70 percent of bank-owned paper is performing; it's the securitizations that have clogged up the world credit system.
- Then there's the bankruptcy-judge cram-down, which would allow the courts to renegotiate interest rates and loan principal; this would abrogate private contracts and throw out the rule of law.
- There is also Fannie Mae and Freddie Mac; only their products are eligible for mortgage relief, jumbo mortgages and private-label mortgages created by various nonbank lenders are not.
What's even more incredible is President Obama's refusal to have any faith in the free market. In some of the hardest-hit areas of the country, markets are already solving the housing problem. While California home prices dropped 41 percent in 2008, home sales in Michigan jumped 85 percent.
If the government really wants to help, instead of bailing out irresponsible mortgage-holders, it should support new and younger families who want to buy starter homes and begin to climb the ladder of prosperity, says Kudlow.
Source: Lawrence Kudlow, "Mortgage Plan Is Rewarding Bad Behavior," Investor's Business Daily, February 20, 2009.
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