Obama's Latest Scam

By Emma Crawford

During an address in Virginia last week, President Obama announced that he would send a significant refinancing plan to Congress that would be designed to alleviate the distress of homeowners who hold underwater mortgages. He assured the Falls Church audience that his plan would not help those Americans who knowingly bought homes they could not afford or who bought a house "to flip for a quick buck." The plan is for those who have underwater mortgages through no fault of their own.

President Obama cited a few statistics that demonstrate the magnitude of the crisis homeowners have faced. In Falls Church home values have fallen by 25 percent, and more than half of all home owners in Las Vegas have mortgages that are underwater. He stated that many home owners have not been able to take advantage of historically low interest rates because falling housing prices have prohibited them from refinancing, forcing them to continue renting apartments and houses. His believes his plan will give every responsible home an opportunity to refinance to reduce the size of the mortgage payment.

The cost of the refinancing plan would be offset by "fees" from the largest financial institutions. This would avoid adding debt to the deficit. President Obama asked congress to join him in putting the plan into action. He warned that his administration would act unilaterally if congress failed to join him. The president announced a homeowner’s bill of rights that would eliminate fine print in mortgage papers, eradicate hidden fees, stop conflicts of interest, and provide safe guards against foreclosure. His plan also calls for a new, clear, simple form for buying a home that would eliminate abuse caused by complicated forms.

The announcement has certainly been met with some skepticism. Many have pointed out that his refinancing plan does not take into account any of the causes for the current housing crisis, such as the 100 percent guarantee offered by Freddie Mac and Fannie Mae that created homeowners that have "no skin in the game." Freddie Mac and Fannie Mae still process about 90 percent of home mortgages.

The previously implemented plans have not mitigated the housing crisis. The forthcoming plan is not seen as materially different from those plans that have already failed. Some believe that those benefits that would help homeowners of underwater mortgages would come at the expense of the majority of homeowners who would not receive any benefit from the proposed plan. This means that resolving unemployment and underemployment would better help homeowners of underwater mortgages.

Defenders of President Obama’s refinancing plan point out that the President’s plan is a temporary bridge for honest, hardworking Americans until the pricing river of the housing market rises again. For defenders, the primary impetuses for arguing for implementation of President Obama’s refinancing reform are compassion, and, since one out of every four mortgages owners is underwater, the belief that helping those underwater homeowners is helping all of America.

There still remains a major hurdle with the plan. A large legal issue may have to be considered before the merits of compassion or the effectiveness of the plan. Home mortgages are contracts. Contractual law is well established. Banks survive and thrive through the existence of contracts. Any law, regulation, or policy that enters in the contractual law domain will ultimately slide out of the hands of politicians. Contractual issues usually end up being resolved by the Judicial branch of government, not by the Executive or Legislative branches. Contractual law is never by pundits.