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Bloomberg News: "Boom-Era Property Speculators to Get Foreclosure Aid"

"The Obama administration will extend mortgage assistance . . . to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble," reports Bloomberg News. "Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal." "John Burns, an Irvine, California-based real estate consultant, said it’s 'ridiculous' for taxpayers to come to the aid of individuals who made bad bets. 'What kind of precedent are you going to set?,' Burns said. 'Are you going to refund people who lost money on the stock market too?'" "The Obama administration announced last month that it would triple incentives to owners of mortgages . . . The extension will apply to all loans, including those held by Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers. About 700,000 landlords will be eligible."

The participation of Fannie Mae and Freddie Mac will drive up the cost to taxpayers of bailing out these government-sponsored mortgage giants, which have cost more than $170 billion to bail out, and have not repaid one penny of their bailout, unlike the private banks, which repaid their bailouts. The tab for bailing out Fannie and Freddie could go much higher. The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, which helped spawn the mortgage crisis, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation. In May 2010, the administration and its congressional allies blocked efforts to reform Fannie and Freddie.

Recently, the Obama administration announced a $26 billion settlement with the big banks that effectively robs Peter to pay Paul, ripping off innocent mortgage investors to reduce the big banks' costs of bailing out certain delinquent and underwater mortgage borrowers. By ripping off investors, it makes investing in mortgages and mortgage-backed securities more risky, which in turn will eventually increase to cost to homeowners of getting a mortgage in the future (after the Fed stops artificially driving down interest rates). The settlement effectively forces thrifty, prudent people to pay their neighbor's mortgage, while funnelling hundreds of millions of dollars to left-wing special interest groups. Politicians’ desire for this settlement was based on voodoo economics, not mainstream economic thinking.

A family member who manages investments for a living says that the Administration's massive bailout for speculators and flippers makes no economic sense (although he believes it may help buy votes in key swing states), and will do nothing to aid home occupancy rates. Rather than rewarding speculators who helped spawn the financial crisis, it would be far cheaper, he says, for the government to "lend money to new investors who can put 20% down. Do you know that most foreclosure buys in places like Phoenix are being done for all cash? If the government would lend me 60% of the purchase price, with recourse against me if i don't pay, I'd buy millions and millions of dollars worth of Phoenix houses and Miami condos. With 40% down, the government's risk would be zero." But he won't do that now, thanks to impending massive tax increases coming up in 2013, and the fact that  he could currently "do better" investing "in overseas property companies." Moreover, he notes that homes once owned by speculators continue to be rented out and lived in even after the speculator is foreclosed upon, and there are companies that do this quite successfully on a large scale -- without a penny from taxpayers  -- in cities like Phoenix that were hit hard by the collapse of the housing bubble. That speculators may not be able to collect as much rent from occupants of a home as they did before the collapse of the housing bubble is no reason for the taxpayers to bail them out, the way the Obama Administration is doing.