The Obama administration will launch today a new $14 billion program to bail out some people who are underwater on their mortgages. During the housing bubble, hundreds of thousands of people made such small down payments on their home that their mortgage was almost as big as the price of their home. When the housing bubble ended, their home value fell to less than their mortgage. Thousands of these people will now receive taxpayer bailouts (although a majority of underwater borrowers won’t — read this Wall Street Journal article for some of the details).
So if you saved money for a down payment, you were a sucker. If you’d spent your money instead, the government might give you a bailout. But since your down payment reduced the size of your mortgage, your mortgage is smaller than the value of your house, and you don’t qualify for a bailout.
This bailout comes exactly two years after federal regulators took over the government-backed mortgage giants Fannie Mae and Freddie Mac, which were bailed out at a cost that may ultimately reach $400 billion. The government took them over in order to stop their risky practices, but after Obama took office, he did the exact opposite. Obama made them increase their losses by ordering them to bail out irresponsible mortgage borrowers, at a cost of $30 billion to Freddie Mac alone. The Obama administration rewarded Fannie Mae and Freddie Mac executives for carrying out these foolish bailouts by showering them with $42 million in pay. The bailouts benefited even irresponsible borrowers with high incomes.
Another Obama mortgage bailout program that cost taxpayers $75 billion actually harmed the real estate market and the economy, according to economists and real estate experts cited in the New York Times. On first glance, it seems like the Obama administration is incapable of learning from its mistakes. But the purpose of this new bailout is probably not to help the economy, but rather to buy votes in the upcoming election in states like Nevada, Florida, and California, which had the biggest housing bubbles. It is a desperate form of political pandering.
Liberal politicians spawned the mortgage crisis through misguided policies such as affordable-housing mandates. The mortgage crisis was also caused by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac. But the new Dodd-Frank financial “reform” law backed by Obama does absolutely nothing to reform Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” The Dodd-Frank law also creates a new bureaucratic agency to enforce the Community Reinvestment Act CRA without regard for banks’ safety and soundness. The CRA, which pressures banks to make risky loans, was previously expanded through regulations in the 1990s, regulations often cited as a cause of the financial crisis.