Cord Blomquist 202-615-0600
Foreclosure Plan Hurts Middle-Class Investors, Retirees
Washington, D.C. , March 4,
2009—A financial policy expert predicts President Obama’s $275 billion
"foreclosure avoidance" plan will actually harm many homeowners, investors,
taxpayers and economic recovery.
Statement by John Berlau,
Director of CEI’s Center for Investors and Entrepreneurs:
Based on initial reports of President Obama’s mortgage plan unveiled
today, my initial concerns have been confirmed.
This plan hurts prudent middle-class
families, not just as taxpayers, but as savers and investors. Many of the
mortgage-backed securities affected by the plan are held not by
banks, but pensions and mutual funds that serve middle-income retirement savers.
These working families would take the actual losses, yet it’s the banks who are
"servicing" the loan that would get the incentive payments from the
government. In a sense, combined with the the bankruptcy
"cramdown" legislation before Congress that would let
judges abrogate mortgage contracts, the Obama plan is cajoling
and paying banks to play fast and loose with their contracts to mortgage
holders and rip off middle-class savers and investors.
regarding Fannie Mae and Freddie Mac refinancing of loans would also give
government encouragement to some practices that fueled the mortgage bubble. President Obama’s plan explicitly states that "in some cases an appraisal will not be necessary." Weren’t loans
without effective appraisal, with substantial backing from Fannie and Freddie, a
big part of what got us into this mess in the first
It’s no wonder that CNBC’s Rick Santelli’s call for a "tea party" had such an incredible
grass-roots response. Middle-class families who saved think it’s unfair to bail
out banks and borrowers who got drunk in the credit binge.
That said, there are
of course many foreclosures caused by genuine cases of hardship
in this economy, such as a job loss. But in those cases, the $275 billion could
be better spent on a payroll or income tax holiday to help with relocation or
rental expenses. Keeping people in their homes at all costs may have the
perverse effect of keeping struggling families from moving to where there are better job
All in all, this plan fails taxpayers,
middle-class savers and investors, homeowners and the economy. The administration and Congress should go back
to the drawing board to tax and regulatory relief, such as
the proposals outlined in CEI’s Bipartisan Agenda for Congress, that could
jumpstart the housing market and economic