Obama Mortgage Refi Plan Makes a Dent in Foreclosure Crisis


Conservative opposition to this plan has been predictable and not particularly vociferous, in light of the fact that the formerly liberal, now newly minted voice of the right has advocated that we let the foreclosure mess "run its course." What's different is the liberal reaction, from a whole host of different sources that seem to advocate a program that would reduce the principal amount of mortgages, as opposed to one that only makes payment-reducing refinancing easier. Their argument is simple—right now there are approximately 11 million homes in the United States that are worth less than the principal amount of the mortgages that encumber them. About one in every eight homes that has a mortgage is either delinquent or in foreclosure. At best, the Obama program would assist, at least to some degree, less than 4 million homeowners, and by definition none would be delinquent or in foreclosure. The unprecedented magnitude of these issues has led some observers to opine that the United States is in "a permanent foreclosure crisis," one that can only be solved by forgiveness of debt in equally unprecedented magnitude.

Taking a step back and thinking about it, it becomes clear that those who push for actual debt forgiveness, which would involve the government taking by fiat an asset of a private lender—at best constitutionally dubious—must necessarily believe that housing prices will not return to their pre-2008 levels for a very long time, if at all.

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So the philosophical question presents itself very naturally: What kind of America do those who advocate debt forgiveness envision? Unless you believe that all those new housing projects in the Gingrich moon colonies will vastly increase supply in the coming years, you must believe that our collective future is rather bleak—meaning at least that there will not be enough money or enough buyers to bring housing prices back to 2007 levels.

I believe that the foreclosure crisis is just that—a crisis about which something extraordinary must be done in the very short run; but I do not believe that it is permanent. That said, there are certainly some situations that will require lowering mortgage amounts, such as those involving lender abuse (the subject of the suit settled just Wednesday night by the 49 state attorneys general which allocated about $26 billion from the big banks, most of which will be used to reduce mortgage principal for about 1 million underwater homeowners and provide cash settlements of about $2,000 to 750,000 people who were foreclosed upon).

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