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July 2, 2010

Obama Housing Program (aka Mortgage Welfare) Update

“Honey, we can get out of the mortgage welfare program.  I just got a two month job with the U.S. Census.”
I have two subsidized housing updates.  They are regarding the Obama foreclosure reduction program and the Fannie Mae/Freddie Mac bailout.
As was reported in the April 2 edition of Common Sense Capitalism, the Obama Administration released a new version of their foreclosure reduction program after their previous program failed.  The administration insists that these welfare programs are set up for “honest” Americans who were “victims” of the recession. 
Common Sense Capitalism has long argued that keeping people in homes they are not paying for is not beneficial to our society.  The feeling of ownership is totally lost.  If something broke in a foreclosed home, do you think the inhabitants will pay to have it fixed?  Do you believe a house will be more or less habitable after a year of being occupied by foreclosed tenants?  Do you believe that their occupation of the home will have an appreciative or depreciative effect on the house’s price?  What about the price of the homes in the neighborhood?
Since the implementation of the new program, we’ve learned that applicants have hit the mall on $1,000+ shopping sprees.  On June 21, the Associated Press reported that applicants are exiting the Obama mortgage welfare program in droves.  According to the article, more than a third of the applicants have withdrawn from the program and “last month alone, 155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009.”
The Obama Administration is claiming that the housing market has greatly improved since the President came into office and that “those who were rejected from the program will get help in other ways.” 
People are not leaving the program because the economy is improved.  How many households have someone coming home yelling, “Honey, we can get out of the mortgage welfare program.  I just got a two month job with the U.S. Census.”  The article goes on to explain that;
“A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.”
The facts are that these so-called “victims” don’t exist, and most of the foreclosures in America are the consequence of either living paycheck to paycheck, with low savings, or simply living beyond their means.  I’m not one to judge the way a person lives their personal financial life, but I’m also not one to pay for their short-comings when they arise.
On the Fannie Mae and Freddie Mac front, the Congress has opted not to include the companies in the financial regulatory debate.  The two combined have currently put taxpayers in the hole by $400 billion plus.  Compare that will the bank portion of TARP that the Obama Administration touted as a huge success for earning a $20 billion profit from the banks and it’s clear that the taxpayer bailout is far from breaking even.  According to an article posted Tuesday on CNBC, Fannie and Freddie could cost taxpayers $1 trillion.
Fannie and Freddie now own hundreds of thousands of foreclosed homes in the United States and have essentially become a “black hole” for U.S. taxpayer dollars.  There was a proposal (as seen from the second video) to force the banks to pay for the winding down of Fannie and Freddie, but that appears to be dead.  I’m opposed to this because we all know who will ultimately end up paying for it.
We’ll keep you posted on Fannie and Freddie and what the finance experts in DC decide to do with it.

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