President Obama announced that he will bypass Congress in an attempt to breathe new life into a collapsing economy by throwing homeowners trying to refinance underwater mortgages a lifeline. The plan will allow people with little or no equity to get low interest rates on their current loans.
The president will make a series of announcements this week, the first being this add-on to the Home Affordable Refinance Program (HARP,) which only applies to homeowners with federally guaranteed mortgages and are current on their payments. It also only pertains to those who are saddled with a mortgage greater than the value of their home.
The program, which is intended to prevent foreclosures, is expected “to encourage new, lower-cost loans” according to a senior administration official.
The HARP program has been an abject failure. The three-year-old program was supposed to allow refinancing for up to 125 percent of a home’s value on mortgages owned or guaranteed by Fannie Mae or Freddie Mac, but red tape and unreasonable eligibility rules, including only allowing those with high credit scores and considered low-risk, have caused the program to collapse under its own weight and has done nothing to prevent a rising foreclosure rate. Furthermore, neither the original program nor the president’s new update does anything to help those who are long-term unemployed that are consuming their life’s savings to remain current on their mortgages.
The latest change, while targeted as a fix to those with mortgages underwater, will move the burden of over-valued properties from Fannie Me and Freddie Mac to the banks; the result will be that those who are not underwater and new purchasers will be pushed further away from new mortgages or refinances. Banks will tighten their loan qualification rules even more and lead to greater reductions in the flow of money from banks to consumers.
Obama’s plan was keenly targeted for announcement today in Las Vegas, where an estimated 60 percent of homes are underwater. The program will also play well in other states, such as Arizona, Florida and California where the underwater mortgage rate is high and borrowers are stuck without options to lower their payments.
Housing and Urban Development Secretary Shaun Donovan said HARP has already helped nearly 1 million homeowners but “has not reached the scale that we hoped and the scale that it needs to reach to be able to reach to unlock this potential tool to help … families in the American economy even further.” HARP was expected to assist more than 3 times the number of homeowners, but nearly two-thirds could not avail themselves of the program. Nothing in the new announcement addresses those problems.
Obama took these steps as a flanking maneuver around Congress, where his “jobs” program has received little support from either side of the aisle.
Obama’s new campaign to show that he cares more than Congress is festooned with anti-congress rhetoric including a new catchphrase, “We can’t wait.”
The reality is that the president never intended his jobs bill to pass Congress but rather demonstrate that it isn’t that his policies are wrong, but that he can’t fix the problems because the Republicans stand in the way.
White House Communications Director, Dan Pfeiffer said that the “We can’t wait” campaign doesn’t mean the White House has abandoned its pressure on Congress to pass the American Jobs Act, yet the president has not spent a single day up on Capitol Hill pressing for its passage.
“We can’t wait for Congress to act so we’re going to take the steps we can take,” Pfeiffer said.
In a West Coast campaign swing this week Obama will announce further policy changes, including a program to aid college graduates in repaying federally backed student loans.
It’s difficult to fault the president’s program to assist those with loans that exceed the value of their homes, yet it seems rather myopic given the greater problem is a stagnate home market, a fact that perhaps more than any other single issue is weighing down the economy. There are an estimated 3.5 million home construction workers idled because of the slow housing market. The overwhelming reason for this is not the foreclosure market, which while at an all-time high, isn’t the number one reason for the molasses which is today’s mortgage market, but rather the scarcity of mortgage loaning. The primary reason for the near-death of the mortgage loan market is the Dodd-Frank securities regulations.
Dodd-Frank was intended to remedy the excesses of Wall Street believed to be the primary cause of the recession; however the scope of the regulation has touched every corner of the banking industry. Banks balance all their loan programs through a variety of other investment programs, but Dodd-Frank has crippled the banking and investment industry to such a point that loan funds have dried up. Every person in the country and every business as well, have been affected by the billions of dollars that no longer flow freely through the economy. While well-intended, government routinely fails to understand the unintended consequences of their acts. As long as Dodd-Frank remains in effect in its current form neither home loans nor business loans will return to their former levels and the unemployment rate will only improve marginally.
There comes a point where “help” from the federal government is self-defeating and the president’s attempts, no matter how well-meaning, become not only ineffectual but potentially further disrupting to the self-healing tendencies of the U.S. economy.