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Obama State of the Union Proposal Could Increase Mortgage Costs, Shrink America's 401(K)s

AEI's James Pethokoukis says that the mass-refinancing plan proposed by President Obama in his State of the Union address would "result in higher financing costs going forward."  It's designed to create a short-term "boost for the economy going into the election." The plan would also harm bank shareholders and people approaching retirement  (most mutual funds that people hold in their 401(k) plans have holdings in banks and thus would be harmed, reduced the size of people's retirement plans, over the long run). Pethokoukis quotes a financial analyst at Guggenheim Washington Research Group who notes that "that a mass refinancing could permanently drive housing finance costs higher. This is a real threat as investors are likely to demand a premium if government policy materially accelerates prepayment rates." Pethokoukis calls this mortgage bailout proposal Obama's "January surprise." The Obama administration is also harming the housing market by pressuring banks to make risky loans to minorities with bad credit, using the threat of massive Justice Department lawsuits. The Assistant Attorney General for Civil Rights, Thomas Perez, has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” and treating welfare “as valid income in mortgage applications,” noted Investor's Business Daily. The last thing the housing market needs is more federal government meddling. A recent book about the causes of the crisis by New York Times business reporter Gretchen Morgenson and financial analyst Josh Rosner, Reckless Endangermentchronicles how “it was [the government-sponsored enterprise] Fannie Mae and the government housing policies it supported, pursued, and exploited that brought the financial system to a halt in 2008.” Financial analysts have recently concluded that federal agencies and the Government-Sponsored Enterprises played a larger role in causing the financial crisis than previously thought. The financial crisis was caused partly by “diversity” mandates and affordable housing mandates that encouraged lending to people with bad credit scores who later defaulted on their loans. Banks were under great pressure from liberal lawmakers to make loans to low-income and minority borrowers. For example, “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers,” The New York Times noted. As The Washington Examiner noted, the government also “encouraged riskier mortgage lending by minimizing the role of credit histories in lending decisions," and "loosening required debt-to-equity ratios to allow  borrowers to make small or even no down payments at all.” The liberal Village Voice previously chronicled how Clinton administration Housing and Urban Development Secretary Andrew Cuomo helped spawn the mortgage crisis through his pressure on lenders to promote affordable housing and diversity. “Andrew Cuomo, the youngest HUD secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that -- in combination with many other factors -- helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments.”