Yesterday, I wrote about how high-income people with $700,000 homes, who are in no danger of becoming homeless, would benefit from the Obama Administration’s massive taxpayer-financed mortgage-bailout plan, and how it would harm the economy in the long-run.
But now, it has become clear that I massively understated the case. The bailout would reduce borrowers’ payments to far below what many borrowers have long paid, with no difficulty whatsoever — reducing the payments of some to 15 or 20 percent of their income! In some regions of the country, much of the population will be eligible for a bailout.
As the New York Times explains, “To qualify, your monthly housing payment needs to exceed more than 31 percent of your gross monthly income (that means before any payroll deductions are made). Keep in mind that your “payment” includes more than just your mortgage’s principal and interest. It also includes real estate taxes” and other charges.
So if you pay 16 percent of your income in mortgage payments, and another 16 percent in real estate taxes, and the total adds up to just over 31 percent, you can have your mortgage payments cut under the bailout!
At the time I took out my mortgage in 2004, my combined mortgage and real estate tax payments were over 40 percent of my income (32 percent mortgage, 8 percent property tax). I had no difficulty paying that, since I was thrifty. But people who pay far less of their income than I did will receive a bailout, provided they didn’t save any money (other than in their retirement plan). Why? Because if they have no non-retirement savings, they can claim (as is sufficient to qualify for the bailout) that they “do not have enough liquid assets to pay [their] mortgage at its existing level. [Their] retirement assets are not included in that equation.”
All of this unfairness might be tolerable if the plan had any hope of spurring an economic recovery. But it doesn’t. The stock markets have fallen like a stone since the Obama Administration pushed through its bailout and stimulus packages. And investors are spooked, as Stanford University economist Michael Boskin notes in his Wall Street Journal column, “Obama’s Radicalism Is Killing the Dow.”
Undeserving high-income households will benefit. “Homeowners with loans as large as $729,750 could see their interest rates temporarily cut to as low as 2 percent under the program,” and in some cases, have their mortgage balances reduced, according to yesterday’s Washington Post. Thus, American taxpayers — including low-income renters — will subsidize the affluent. The American public opposes mortgage bailouts, which are likely to impede economic recovery.
Bailouts and stimulus plans actually shrink the economy in the long run, while exploding government debt, as happened in Japan in the 1990s. Even the Congressional Budget Office admits that the $800 billion stimulus package signed by President Obama will slightly reduce the economy’s size in the long-run, although it claims it will increase the economy modestly in the short run (i.e., by the next election).
As one commentator notes, “In less than 50 days, Obama has spent more than three times the cost of the entire Iraq War so far. This year, he will more than triple the largest deficit of the Bush era.” His policies have not reassured international investors, either. Obama’s fiscal policies have been described as a “$4 Trillion Poker Game” in the London Times.
At the same time, Obama has also clung tenaciously to some of “most destructive policies of the Bush administration,” such as its counterproductive accounting regulations.