George Santayana famously said "Those who cannot remember the past are condemned to repeat it." It is clear that the Democratic party and especially Barney Frank have never heard of the saying or if they have they have forgotten the past. Does anybody remember "welfare queens" and how successfully the Republicans were able to use that to run against Democrats. Well here is my forecast that will be rolled out again except this time it will be "foreclosure queens"- the group of bankers and borrowers (although the Republican will only focus on the borrowers)feeding at like pigs at the taxpayer trough.
Barney Frank (and regrettably the PE) are supporting the idea of using $100 billion to "avoid foreclosures". Lets be clear there are only two ways for the government to avoid a foreclosure- it can either pay part or all of the interest owed by the borrower or part or of all principal payment owed by the borrower (or some combination). In other words we are asking that tax payer money be spent on keeping somebody in the home that they can't afford to live in- either because they never could afford to be in it to start with or because they lost their job or were subject to some unforeseen disaster.
Secondly, various legislatures and Fannie and Freddie Mac have put forth foreclosure moratoriums. In other words there are millions of people who are getting the opportunity of living essentially free in their homes courtesy of the tax payers.
I wonder when those who are fighting to keep their heads above water and doing their best to give their children a decent future will feel, when they realize their hard work and their children's future is being mortgaged to keep a small number of people who failed to keep their side of the bargain in homes.
Chris Dodd has said that foreclosures could reach 8 million - and while that is a large number it misses the point that there are 67million other home owners who are not in default. Many of them are working two or more jobs cutting and scrimping so that they can make the mortgage payment, many of them have done so for years as a result of which approximately 27 million homeowners have NO MORTGAGE DEBT. What about the 35 million renters who are going through the same challenges of meeting the rent payment. When they lose their job or are subject to an unforeseen disaster they are evicted and go through exactly the same suffering as a foreclosed homeowner. What is the government doing for them - exactly nothing!
In other words for the 102 million home owners and renters the government will be using their hard earned tax dollars to subsidize 8 million foreclosed homeowners. The economy has lost 2 million jobs and at best that would account for 2million foreclosure add in those who suffered a medical emergency and you are still talking about 5milllion plus foreclosures which are entirely due to the borrower not being able to make the mortgage payment. Exactly the sort of people hard working tax payers want to be subsidizing.
Besides the obvious inequity this is also bad economic policy. What is the incentive for anybody to work a second job to make their mortgage payment and all this talk about helping in foreclosure is actually going to make the problem worse not better. If the government is going to make interest or principle payments on behalf of any borrower in danger of foreclosure why bother trying to make the payment. Much better to stop payments and let the bank start foreclosure procedures. Since courtesy of state legislatures and Fannie they can't do because there is a moratorium. That's good for about six months worth of payments. Then the government comes and helps- what a deal. Frankly, anybody who makes a mortgage payment is a complete idiot.
This is not to say that the government doesn't have a role in the foreclosure process. Allowing judges to "cram down" mortgages is a good place to start. Expanding the stock of affordable housing is another good idea so that families who are foreclosed on have a place to stay.(I was pleased to see that it was part of the stimulus package).
