President Obama unveiled his new mortgage plan on Monday. Peter Morici says it sows the seeds of another credit crisis:
He proposes to let homeowners, still up-to-date on their mortgages, refinance no matter how much the value of their home has fallen below what they owe and without cumbersome underwriters checks-home appraisals, and rigorous credit and income checks. That is a prescription for more failed loans and another crisis in mortgage finance down the road or huge losses for U.S. taxpayers that can only be accommodated by even bigger deficits and printing money.
For example, homes underwater by 50 percent today will sooner or later be sold and then what? Fannie Mae and Freddie Mac get stuck with the loss. Either future homebuyers seeking loans will have to pay outsized fees to cover these fees, or the taxpayers bail out these government sponsored institutions yet again. Either way, the housing market will take a big future hit, for campaign largess granted today.
Obama’s plan also brings back the bad old days of too-easy credit.
Now the president proposed to throw those out the window, and let folks who may earn $80,000 a year and owe $200,000 on their home qualify for lower interest mortgages without checking if they have been using the ATM machine to pay their mortgages or otherwise running up credit card debt and auto loans. No checks will be required to ensure applicants have not had a recent dip in income owing to a layoff-and we still have lots of those if the Administration had not noticed.
With a housing market that in most states that is still on a depression footing, and with unemployment in many states up around 8 to 10 percent, no credit check re-fi will lead to some defaults, and the taxpayer is on the hook — again. The responsible homeowner who has kept up with payments will then see another reduction in the value of his most important investment. It’s a housing plan that Cloward and Piven would love, and the rest of us should fear.