Foreclosure Crisis Will Not Be Solved With The New Policy Lines

The foreclosure crisis will not be solved with the new policy lines undertaken by the Obama administration. It is the same story repeated – another bailout has been sneaked in. Those who had behaved recklessly are once more being rewarded while nearly 90% of the responsible borrowers of residential loans are being punished. This is setting up a moral precedent and expanding the bailing out.

The add-on to HAMP will not be of much help. HAMP itself has proved to be a sad failure. In fact the whole set of programmes aiming to check foreclosure has been a let down of hopes.

The Office of the Comptroller of the Currency reported that over 60% of the modified mortgages started to again default within a year of it being modified. Following this has come the brilliant plan that if one lives in the prime residence and has a mortgage balance that is below $729,750, has monthly mortgage commitments that more than 31% of his or her earnings and can prove financial difficulties then government help will be available from the TARP funds. The money will be given to the lenders and banks to bring down the loan principal.

Keith Hennessey, formerly an economist under Bush rule, pointed out that the outrageous scheme would actually help people annually earning $186,000 who have a mortgage due balance of $700,000. It is not even an entitlement for the middle class – it is a helpline for the upper middle-class. The top earning level starts virtually from $186,000 according to the definition chalked out by the Obama administration for those eligible hikes in taxes.

It means for only $14,000 more in your earnings, Obama administration will jack up the rate of personal income tax and capital-gains tax. But now for something below $200,000 one get avail of a new forgiveness programme for the mortgage on the house.

The whole thing is nothing but outrageous.

The Tea Party complaint often made is that I do not like another to pay for my mistakes and neither do I want to suffer for your mistakes. Why should 90% of those who had not made bad decisions about purchasing a home through mortgage have to pay for 10% of those who did not make wise decisions?

In other words merely because the value of the house has fallen below the loan amount that is due, why should the borrower whine and walk away? Why cannot this loan be modified to a longer term and allow for prices to normalize?

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