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Nine Million Lifelines


Obama greets the crowd after his speech in Arizona yesterday. (AP Photo/Gerald Herbert)

President Obama's financial rescue proposal is still very hypothetical. His stimulus package is almost too big to comprehend, and it has yet to bear fruit. But his promise yesterday to help as many as nine million struggling homeowners had a real solidity to it, creating the most concrete sense yet that help is on the way to the people at the heart of this economic crisis.

Starting two weeks from now, a series of governmental sticks and carrots will encourage lenders to modify loan terms for as many as four million homeowners currently facing the prospect of foreclosure. And as many as five million homeowners who have little or even negative equity in their homes will be able to refinance their loans at low interest rates.

Barbara Kiviat writes for Time: "How effective all that will be is an unanswered question. No plan can change the fundamental economics of a bubble deflating or an economy stalling — of overpriced homes returning to more-reasonable prices and out-of-work homeowners not having the income to make mortgage payments. What this plan does offer, though, is a series of targeted interventions designed to help specific groups of borrowers, and by doing that to hopefully limit the knock-on damage caused by foreclosures, both to neighborhoods and the overall economy. 'This will help some people who deserve to be helped,' says Joe Gyrouko, a professor of real estate and finance at the University of Pennsylvania's Wharton School. 'But will this stop the decline in housing prices? No.'"

Sheryl Gay Stolberg and Edmund L. Andrews write in the New York Times: "The plan, which was more ambitious and expensive than many housing analysts had expected, drew praise from consumer advocates as well as the financial industry....

"Except for the provision that empowers bankruptcy judges, almost all the other elements can be enacted by Mr. Obama without further action by Congress."

Jenifer B. McKim writes in the Boston Globe: "Housing advocates praised the plan as ambitious, with cash incentives to lenders and borrowers to help stop the bleeding that has left nearly 10 percent of US homeowners either in foreclosure or behind on their mortgages. The plan, which uses federal money that was previously authorized, incorporates many proposals suggested over the past six months as the housing crisis has worsened."

Nobody, of course, is suggesting that it is perfect.

Laura Meckler writes in the Wall Street Journal: "The plan drew praise for its use of incentives. But critics said it didn't do enough to address the difficulty of altering loans packaged into securities. It also will be harder for people to refinance their mortgages if they owe much more than the house is worth or the mortgages aren't owned or guaranteed by Fannie Mae or Freddie Mac. That would leave out many borrowers in hard-hit states such as Florida, California and Arizona...

"Some economists were hopeful the Obama plan would subsidize an interest-rate reduction for borrowers. Instead, it appears designed to aid homeowners who might lose their homes."

Michael D. Fletcher and Renae Merle write in The Washington Post that the package "drew criticism from some housing experts and consumer advocates, who argued that it does not go far enough in addressing some critical aspects of the foreclosure crisis....

"While broad, the package does not tackle some key issues, critics said, noting that it does not include a plan for dealing with second mortgages, which often become a stumbling block for mortgage-modification programs. Others pointed out that for many lenders, the program would be voluntary."

Will this turn into just the latest political football? Quite possibly.

Stephanie Armour writes for USA Today: "On Capitol Hill, some Republicans — amplifying criticisms by homeowners who didn't buy more expensive houses than they could afford and have paid their mortgages on time — challenged the fairness of an expensive bailout.

"House Republican Leader John Boehner, R-Ohio, and Republican Whip Eric Cantor, R-Va., sent the president a letter asking, 'What will your plan do for the over 90% of homeowners who are playing and paying by the rules?'"

Mike Madden writes for Salon that Democrats yesterday "noted pointedly that the Bush administration could have done the exact same thing under the authority Congress gave it during the financial crisis last fall, and didn't. 'This is light-years ahead of anything we saw coming out of the Bush administration,' said Andrew Jakabovics, a housing analyst at the Center for American Progress, a liberal think tank. Obama hit the same theme, a little less directly. 'Our housing crisis was born of eroding home values, but it was also [born] of the erosion of our common values,' he said. 'And in some cases, common sense.'"

The New York Times editorial board writes: "The anti-foreclosure plan announced by President Obama on Wednesday is a decisive break from the Bush administration’s disastrous protect-the-banks-but-not-the-homeowners policy. The president has promised that it will help as many as nine million American families refinance their mortgages or avoid foreclosure. That’s a good start, but given the dire state of the economy, we fear it still may not be enough."

The Washington Post editorial board writes: "Mr. Obama has negotiated the trade-offs cautiously. His plan offers more relief than previous programs, and targets it. Cutting some homeowners' borrowing costs could help them stay in their homes as long as they still have work. The plan pushes back against the recessionary tide. But that tide is still rising."

The Wall Street Journal editorial board writes that "by investing in failure, the Administration will...prolong the housing downturn and make financing a home purchase more difficult for future borrowers. Meanwhile, the plan isn't likely to slow the continuing decline in housing prices."

By Dan Froomkin  |  February 19, 2009; 12:55 PM ET
Categories:  Financial Crisis  
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Comments

Sharmac Capital's Rick Santelli said it best: "The government is promoting bad behavior, do we really want to subsidize the losers' mortgages. This is America! How many of you people want to pay for your neighbor's mortgage? President Obama are you listening? How about we all stop paying our mortgage! It's a moral hazard'"

Posted by: SharpshootingPugilist | February 19, 2009 1:51 PM | Report abuse

"House Republican Leader John Boehner, R-Ohio, and Republican Whip Eric Cantor, R-Va., sent the president a letter asking, 'What will your plan do for the over 90% of homeowners who are playing and paying by the rules?'"

Take your pick:

1. It will keep abandoned homes and foreclosures from dragging their property values down.

or

2. The same thing TARP is doing for the 90% of small banks who played by the rules and didn't buy into the subprime/CDO house of cards.

Posted by: BigTunaTim | February 19, 2009 1:51 PM | Report abuse

"The government is promoting bad behavior, do we really want to subsidize the losers' mortgages. This is America! How many of you people want to pay for your neighbor's mortgage? ... It's a moral hazard"

Wow, you people are all so full of the spirit of Christian love. Like Ann Coulter and Rush Limbaugh, who are such fine Christians. Right: "This is America!" -- Where we just say, "Let 'em sink! I've got mine!"

Blows my mind.

"What will your plan do for the over 90% of homeowners who are playing and paying by the rules?"

I think it was Jesus who said, "Those who are well don't need a doctor, but the sick do."

He also said, "Love your neighbor as yourself."

Grow a heart. And by the way, if enough of "them" go down, idiots, YOU GO TOO.

Posted by: herzliebster | February 19, 2009 2:11 PM | Report abuse

Well...it's truly amazing....while the GOP is bashing the stimulus and the housing plan...Georgie Bush allocated 5 million buckaroo's to Health & Human Services to start up an office to promote "Marriage"...hopefully Obama will ax this truly stupid and worthless waste of tax money....in the meantime money spent to extend unemployment and help reduce foreclosed neighborhood's is well...money well spent!

Posted by: constwkr | February 19, 2009 2:22 PM | Report abuse

As much as I enjoy and often agree with Rick Santelli on the daily talking heads. He is off the tracks on his comments this morning. Helping the mortgage default problem is way past letting a neighbor who lost their job or has seen their credit rating slip. There by not allowing them to refi their mortgage. Being able to refi was all the spin during the 04-06 housing explosion.

Are you all suggesting that we say tough and let them go down. Heck, let's give the banks the same tough love. While we're at it gee, what about GM, Chryler and Wall Street getting the same tough love.

That won't work for many a reason.

These are tought times. How tough?

I've been around long enough to see the post WWII contraction, the 70's, 80's and 90's recessions. In my book this is the toughest decline I have seen in this country and perhaps world wide.

We all need to saddle up. work as team or as they say about a house divided.

Posted by: nstein1 | February 19, 2009 2:27 PM | Report abuse

I struggle with the fairness of this all and think there is a solution.

Allow all mortgage holders to convert their mortgages to 30-year 2% loans or 15-year 1% loans issued by the U.S. government. The government pays off all those CDOs and flushes them out of the financial system.

This has several benefits: ends the current banking crisis and acts like a tax cut to home-owning Americans in the form of lower mortgage payments. Banks will be flush will cash and since we nationalized the home loan business, the banks can concentrate on making loans to businesses.

Downside: The government will have to temporarily drastically increase the money supply. The money supply can be reduced over time as home owners make their mortgage payments and banks buy Treasury bonds with all that extra cash.

Posted by: DesertLeap | February 19, 2009 3:01 PM | Report abuse

Hey leave Sharpie alone. He's a military man and doesn't need any of that government support like free health care for him and his family.

Posted by: troyd2009 | February 19, 2009 3:16 PM | Report abuse

Isn't it ironic that Obama sued Citibank years ago to force them to give out loans to people who could not afford them at the time, and thereby entrapping those same people in foreclosure today. Obama's lawsuit prosecuted under the guise of the Community Reinvestment Act, spurred a new precedent that triggered the entire banking industry to follow the same pattern or else suffer litigation like Citibank did. At least Countrywide Mortgage was smart enough to buy off Senator Dodd to allow the government to buy up Countrywide's toxic assets and avoid litigation in the process.

Best thing that can happen for all those poor folks abused by Democrats like Obama and Dodd who entrapped them in inevitable foreclosures, is to take the loss and find a place to rent. And please behave like a responsible person and don't ever buy a house again until you have 20% down payment...period. Because if you are fool enough to take the government mortgage "lifeline", you are one step closer to surrendering control of your entire life to the government and becoming a serf.

Posted by: tom2 | February 19, 2009 3:16 PM | Report abuse

While the Repubs can only write a letter asking questions Obama is taking real action to help us regular Americans.

Of course, the only solution the Repubs have for anything is to cut taxes so they're clueless on this issue.

Thanks Obama!

Posted by: RightDownTheMiddle | February 19, 2009 4:30 PM | Report abuse

Tom2 is addicted to his racist lies, que no? Funny that the loans he is crying about are the ones that banks want to buy because the laws Democrats passed demanded caution and due diligence. The Republicans were the ones who handed out liar's loans and said the regulations were in the way of HUGE PROFITS!!! Crackheads want crack, I guess.

Posted by: sparkplug1 | February 19, 2009 4:46 PM | Report abuse

The point of the lawsuits against the banks was to make them offer loans equally. They continued to offer loans unequally in that minorities (and whites) were offered loans at rates above what they qualified for. The Commumity Reinvestment Act wasn't responsible for the no income, no job loans that the banks gave out - greed was. I would sure like to see the people responsible for those loan policies to go to jail.

Posted by: dickdata | February 19, 2009 4:55 PM | Report abuse

That’s right troyd2009, unless you count my 80+ hour work weeks in the most miserable conditions known to man when deployed, my benefits are really “free” aren’t they?

These "homeowners" who took mortgages out on homes they couldn’t afford shouldn’t be allowed to use the government to force me at gunpoint to bail them out and the lending institutions who enabled them out.

Posted by: SharpshootingPugilist | February 19, 2009 4:58 PM | Report abuse

Hey sparkplug1:

By the looks of your reaction I must have hit the truth nail on the head.

Cries of racism was the same tactic Democrats used when Republicans attempted to regulate Fannie and Freddie Mac which were were used by the Clinton administration to give out loans to people who could not afford them, again abusively trapping them in inevitable foreclosure. Interesting how these high risk loans programs got started with pilot initiatives in California where the foreclosure rate is highest....coincidence? I think not.

The lesson here is the Democrats don't care abut you. They just want to control you. Like an abusive spouse they will without conscience trick you, hurt you and come back with I-am-sorry-i-love-you-baby cash in a never ending cycle of pathological dependency.

The most compassionate approach for those under foreclosure right now is just sell, eat the loss, learn from your mistake, find a place to rent, and breath easier with a smidge of new fund freedom.

Posted by: tom2 | February 19, 2009 5:10 PM | Report abuse

I keep hearing about banks being forced to lend to unqualified borrowers, but here, for example, is what that this Obama/Citibank lawsuit alleged:

"Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories."

So this lawsuit, and the Community Reinvestment Act generally, wasn't about lowering lending standards; it was about treating people equally. Blacks and whites of equal income and credit histories were being treated differently, in much the same way that blacks and whites had been treated differently with respect to voting rights, employment, etc. and CRA sought to remedy this. If a bank can show that they use the same standards for minorities and non-minorities (majorities?), that they're not "redlining", then they would have no problem complying with CRA. THe amount of misinformation floating around about CRA is astounding.

Can someone point me to a banker who has gone on record as saying that they were forced to give loans to unqualified lenders as a result of CRA? I keep hearing this allegation, but not once from someone qualified to make it. I'll keep an open mind, but someone please show me... uh... the money.

Those who point to a single cause of the mess we're in just don't understand the complexity of the situation.

That said, I don't know what to think about this stimulus/bailout, and I have a degree in Economics! On the one hand, you hate to see bad behavior rewarded, and the temptation is to say screw em all, let em all go under - the banks; GM and Chrysler; the businesses, solvent or otherwise, whose loans have been called or lines of credit cancelled; and the millions people who will lose their homes, their jobs, their health insurance, their life savings, etc. The medicine will taste bad going down but in theory we'll come through it stronger, at some point. But on the other hand, the government can't just sit around and do nothing while Rome burns. And tax cuts just aren't going to get it done. So we're left with a bank bailout and more deficit spending to "prime the pump". Will re-sodding the Mall provide any stimulus? I guess. There's the landscaping company hired to install the sod; the farmer(s) who supply the sod; the seed and fertilizer companies that supply the farmers, and on and on. Does anybody know what will work and what won't? No! So a portion of the stimulus is certain not to have the intended effect, but nobody can say with any degree of certainty which portion. And there is bound to be "collateral benefit" (the mirror image of the euphemistic "collateral damage") - those who benefit who don't deserve to, like the bankers who get to keep their multi-million-dollar-a-year jobs and Upper East Side penthouses because we can't afford to be without a functioning banking system.

All pretty depressing.

Posted by: TonyFo | February 19, 2009 5:23 PM | Report abuse

Hey Sharpie, don't you find a more than a little ironic that you decry the government helping out people as socialism when the military is a socialist organization from top to bottom? Think about it. The military has its own court system, they provide free health care, they provide housing for personnel in some cases and best of all they have guaranteed jobs at least until they get passed over, but at the present time that's not a problem.

And you say, oh you work hard so you deserve all those benefits. Don't you think other Americans work hard? Are you really myopic enough to think that all the people losing their homes took out liars loans? The military is a world unto itself so I guess I shouldn't expect you to actually understand what the real world looks like.

Posted by: troyd2009 | February 19, 2009 5:29 PM | Report abuse

Tom2 revisionist history is the last refuge of scoundrels.

Didn't the CBO conclude that those laws contributed to about 50,000 delinquent mortgages? That's a far cry less than the millions who are behind or in foreclosure now.

I'm not for helping out deadbeats, but at the same time I don't want the economic situation to get worse so I don't have to join them on the streets.

Posted by: troyd2009 | February 19, 2009 5:33 PM | Report abuse

Nice headlines for all the caring souls out there:

"Newly Poor Swell Lines at Food Banks Nationwide"

See you in the soup line Hooverites.

Posted by: troyd2009 | February 19, 2009 5:56 PM | Report abuse

Isn't it wonderful to hear House Minority Leader John Boehner preach the GOP version of morality in response to the president's plan to try to stem the mortgage crisis? Oh, how he wails for those "90%" of homeowners who are paying their mortgages on time.

I just wonder, when Mr. Boehner sees fire fighters battling a house fire, does he moralize that neither he nor 99% of the people who live in houses ever need the services of the fire department?

Does he go to hospital emergency rooms and try to throw out anyone who was injured while driving under the influence?

When he was a child 50 years ago, did he or his parents oppose free polio vaccinations, since only about 10% of children contracted polio?

Mr. Boehner and the GOP still wish to pretend that we aren't in a crisis. He can't see past his nose, and invites those homeowners who aren't in trouble--today--to share his myopia. He ignores the fact that home values are further depressed as foreclosures increase. He also ignores that many of those 90% who aren't in trouble today may very well be in trouble, uh, before the 2010 elections.

He also ignores the probability that a great many of those homeowners--both the "moral" and "immoral" or soon to be "immoral" ones--probably were, or are, at least presently, voters who identify with the GOP.

Once again, the GOP takes a giant step towards further narrowing its base. Except now, the values it preaches are becoming ever more separated from reality.

Posted by: bfieldk | February 19, 2009 6:34 PM | Report abuse

If the plan leaves out CA, FL, and AZ because it doesn't address those who've lost 1/2 of their home values, then the plan is not going to help those who need it most.

Posted by: R2D22 | February 19, 2009 6:51 PM | Report abuse

BigTunaTim | February 19, 2009 1:51 PM you.


You are so absolutely right! I applaud your thinking and appreciate your insight which is so true and so helpful. Thank

Posted by: MadasHelinVA | February 19, 2009 6:52 PM | Report abuse

"What will your plan do for the over 90% of homeowners who are playing and paying by the rules?"

Gosh, do these people need help? Are they in danger of losing their homes? I had no idea things were that bad!

Posted by: bb211 | February 19, 2009 11:48 PM | Report abuse

Though it must never be spoken aloud, it should be obvious that one of the essential features for the GOP of their 100%-tax-cuts stimulus plan is that tax cuts provide no benefit at all to the poorest and hardest hit Americans.

With tax infrastructure investments like roads and bridges there's simply no getting around some of the benefits falling on those undeserving poor people.

Posted by: p00pie | February 20, 2009 12:18 AM | Report abuse

tom2:

read the details of the class action suit a excerpt follows:

"Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages."

Citibank was forced to be fair not to make bad loans.

As Obama reminds us: You can't listen to Rush and get anything done.

Learning to use google to check out your facts and assertions is a useful habit but you have to do it before you post. I'll give you a headstart - check this link out then let me know how you read it.

http://answers.yahoo.com/question/indexqid=20081005160457AAi5KYC

Regards,

mickster

Jeez!!!

Posted by: mickster1 | February 20, 2009 1:48 AM | Report abuse

I bought a house last year. It isnt much really, but I can afford it. I hope in time to build equity, sell it and find a house that is nicer and not so far away from my workplace.

I dont plan to bet on raising property values.
I dont plan to get a home equity loan so that I can buy a nicer car or big screen TVs.
I also dont think its fair that I sat on the sidelines for 3 years waiting for prices to come down before buying a home and now I have to pay for other peoples mistakes who jumped in with both feet KNOWING they couldnt afford their Mortgage after it reset!

I have no problem with the GOV helping those fools, but you better help us all or none of us!
I'll be damned if my hard earned money goes to help someone making $60K a year keep their 300K house.
Or someone that was in good shape but then took out an equity loan so that could "live large."
We all make our beds, but you better think twice before stealing my flannel blanket and giving it to the ones that have been wrapped in silk sheets for the last 5 years!

Posted by: OustedSoul | February 20, 2009 6:21 AM | Report abuse

By all means we should give the people that bought houses they couldn't afford, a second chance to screw it up again. Makes total liberal sense.

Posted by: thebink | February 20, 2009 7:20 AM | Report abuse

Rick Santelli made me want to throw up, and then I had to watch it over and over again... Switched to Bloomburg and haven't gone back.

Where was the outrage on Moral Hazard when we were (unsuccessfully) bailing out the big banks and Wall Street to a much larger number of $$$$? I don't like the idea of bailing out someone who was foolish in buying a house, especially those that kept taking out equity. However, even less do I like the idea of foreclosures in my neighborhood, the valule of my house going down, the value of my 401K going down. Get the idea?

WE have thrown a ton of money at Wall Street and AIG, to name a few. Everything I hear says we need to stop the bleeding in the housing market. This plan seems like a start. Maybe the Ricks of the world are pissed off because the plan doesn't include those jumbo loans. The poor middle class bloke that just has a house is beneath them to worry about.

Posted by: jowc123 | February 20, 2009 11:59 AM | Report abuse

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