President Obama apparently has noticed home mortgage interest rates are at or near record lows. Hints from the White House suggest he may soon announce a new mortgage refinancing program for people who owe more on their loans than their houses are worth.
The president is nothing if not persistent. Just a few days ago Neil Barofsky, the special inspector general for the government’s bank bailouts, labeled the government’s current mortgage rescue program “nothing short of abysmal.”
Barofsky told a House oversight committee the government’s Home Affordable Mortgage Program “was the program that was supposed to be of help to Main Street” but noted that, with only 549,620 permanent mortgage modifications started, “there’s no way we’re going to ever get close to the 3 million to 4 million” homeowners who were supposed to be helped.
The president persists in believing government can solve problems in the mortgage market even though there is overwhelming evidence government has been the cause of the problems.
Years of artificially low interest rates and easy credit facilitated by the Federal Reserve, Fannie Mae, Freddie Mac, and government regulations to steer credit to people who were poor credit risks, enabled buyers to bid up housing prices, sending them through the roof in some markets. Credit became so loose and lending standards so laughable that people were able to secure loans without documenting employment or income. The recklessness could no longer be sustained, and the housing market tanked.
Instead of allowing housing prices to fall to the homes’ real values, the government agencies and regulators that caused the crisis have done everything they could to prop up prices artificially.
Obama’s latest solution apparently is to give the nation more of what caused the crisis and has sustained it.
The New York Times reports the refinancing program now under consideration in the Obama White House could save qualifying homeowners $85 billion a year. Those $85 billion, in the view of the White House, would create an economic stimulus.
To qualify, borrowers would need to have government-backed mortgages, which means the $85 billion ultimately would come from other Americans who are working and paying their taxes and their mortgages. On a national scale it’s like taking money out of the left pocket and moving it to the right one. Nothing is gained, thus no stimulus effect is possible.
In addition, if the problem for a particular homeowner is a mortgage that costs more than the house is worth, shaving a bit off the interest rate isn’t going to help. Many borrowers have stopped paying their mortgages because the house is worth less than the mortgage amount and they rightly can’t see the point in sending good money after bad, not because they cannot afford the monthly mortgage payments.
Maybe the leak to the New York Times is just another trial balloon to see if the idea floats or pops. Let’s hope that’s all it is, and let’s hope enough critics of the government’s manipulations of interest rates, money supply, and mortgage markets start throwing darts to pop the balloon.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute.