President Obama has another grand rescue coming our way. Today he will announce a $50 billion home rescue plan. The goal will be to slow down or prevent more home foreclosures. The plan? Well PrezBo really knows how to present a policy proposal to the American people. Listen to this: He wants to “encourage services and lenders to do the right thing.” Eureka! Why didn’t anyone else think of this! Problem solved! Just tell the lenders to do the right thing! No wonder we made this guy our leader.
There are some specifics. Obama wants lenders to modify interest rates and payments to make it easier for some homeowners to get back on their feet. OK, that sounds doable — for borrowers that didn’t lie through their teeth to get their loans and who bought their homes with some reasonable expectation of being able to pay for them. For homeowners who had no job history, no credit rating, and who lied about income on their home loan applications … no deal. They should have been renters … and renters they should become.
Here’s the dangerous part of Barack’s plan — other than the spending of another $50 billion that is. He wants to give bankruptcy judges the power to reduce the principal balances due under some loans. This is nothing less than pure theft.
Until the mortgage market went into the toilet I was a private mortgage lender. I’ve already had to take one home back from a borrow who was unable (or just refused) to pay. Thankfully I only have one borrower on the brink right now. What would it mean to me if that borrow declared bankruptcy and some bankruptcy judge came along and said (for example) “Mr. Boortz, I’m reducing the principal amount of Mr. Sternfaulter’s loan by $50,000.” Well, simply put .. this would mean that the judge has just seized $50,000 from me. Taken. Confiscated. Seized. Stolen. Call it what you will .. but $50,000 is gone.
Why are bankruptcy judges now prohibited from reducing the principal amount due under a home loan? That would be because it makes it easier for people to buy homes. Lenders are assured that at least they will get their principal balance back .. through loan repayment, a bankruptcy arrangement or foreclosure. But what happens is lenders can’t be assured of at least getting their principal back? They would face bigger potential losses. How do you prepare for increased potential losses? You charge more for your product in order to create a reserve that would cover those loses. How do you do that? Higher interest rates. Higher interest rates would make it more difficult for you to buy a home .. not to mention more expensive.
Great plan, PrezBO.
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