Mike Shedlock

Today, under guise of helping "responsible homeowners" president Obama published details of Plan to Help Homeowners and Heal the Housing Market

Key Aspects of the President’s Plan as Presented

  • Broad Based Refinancing to Help Responsible Borrowers Save an Average of $3,000 per Year: The President’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates, cutting through the red tape that prevents these borrowers from saving hundreds of dollars a month and thousands of dollars a year. This plan, which is paid for by a financial fee so that it does not add a dime to the deficit, will:
  • Provide access to refinancing for all non-GSE borrowers who are current on their payments and meet a set of simple criteria.
  • Streamline the refinancing process for all GSE borrowers who are current on their loans.
  • Give borrowers the chance to rebuild equity through refinancing.
  • Homeowner Bill of Rights: The President is putting forward a single set of standards to make sure borrowers and lenders play by the same rules
  • Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work: Following the Administration’s lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.
  • Pursuing a Joint Investigation into Mortgage Origination and Servicing Abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.
  • Rehabilitating Neighborhoods and Reducing Foreclosures: In addition to the steps outlined above, the Administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.

State of the Union Analysis

I did an analysis of the proposal based on sketchy details, immediately following the president's State of the Union Address.

Obama Proposes Mortgage Bailouts, Handouts, Copouts Exactly One Paragraph After Stating "Top to Bottom: No Bailouts, No Handouts, and No Copouts"; How the Taxpayer Ripoff Works.
 $10 Billion?! Really?

The proposal as outlined rates to take every "responsible" underwater mortgage held by banks, Fannie Mae, Freddie Mac, hedge funds, foreign banks, and pension plans, and transfer all of them to the FHA. The idea this will only cost $10 billion is absurd.

The "small fees on the largest financial institutions" are absolutely guaranteed to not cover the cost of this monstrous proposal. Indeed there is something in Obama's proposal for everyone except "responsible citizens".

"Let’s never forget: Millions of Americans who work hard and play by the rules every day" will be royally screwed by Obama's proposition in the form of higher taxes down the road.
One key point that I  did not consider at the time came for reader David who said "A refinanced mortgage is a properly documented mortgage. So this also helps to clean up the mess of all the MERS, notes with broken signatures, improperly registered, etc."

There is also a change in availability, one has to be current to take advantage. So taking those points into consideration....

Five Key Aspects of the President’s Plan in Reality

  1. Bail Out Banks, Fannie Mae, Hedge Funds, Wall Street, literally everyone holding mortgage-backed paper.
  2. Bank of America with all its Countrywide Financial garbage and Wells Fargo with all its Option ARM garbage will be especially big beneficiaries
  3. Fix MERS. Every refinanced loan will have clear title
  4. Throw homeowners a relatively small bone
  5. Screw responsible taxpayers who have no mortgage as well as those who rent

Addendum: 

Reader Barry comments on "responsible" taxpayers.
Hello Mish
I lived in a two bedroom apartment for 17 years with my wife, and then my wife and two sons to save up money.

I did not buy a home until 2 1/2 years ago. I bought my home with cash. I have not been to Disneyland, nor have my children been on any fancy vacations (my sons are now 6 and 8).

Since the government doesn't actually earn any money, it just distributes it, how about instead of giving these billions to those who bought homes they shouldn't have, instead they give it to people like me.

Instead of the money going to the banks to pay off mortgages that should never have been granted in the first place, I would use the money to help pay for my son's college education, my retirement, and maybe a new car which will help employ some Detroit workers.

Seriously, why should those "alleged responsible" citizens get any more consideration than I do?

Anyway, thanks for listening,

Barry
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.