Democratic Presidential Candidate Barack Obama on the Housing Market and Foreclosure Crisis

Every time government officials successfully trick the people into voting to give government more power and continue its existence for another four years, special interest groups and power-hungry bureaucrats are given nearly free reign on plundering ordinary citizens.

With a housing crisis already underway, though, tricking homeowners into voting for a particular candidate for president is a high priority for both Barack Obama and John McCain, each of which has available on their websites an outline of a plan to solve the foreclosure mess.

The small number of people who actually wish to inform themselves of the issues before going to vote may wish to read the candidates’ proposals, only a sample of which will be detailed here. The issues will be examined for each candidate, with the Democratic nominee analyzed first.

From Obama’s website comes this about the subprime mortgage industry:

Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
The subprime industry has been largely self-regulating at the highest levels: when Wall Street investment firms made billions of dollars in fees generated from tricking homeowners into loans they could not afford, the industry took off. As soon as defaults began to rise, buyers for CDO, ABS, MBS, and other similar mortgage-backed bonds disappeared as investors realized that lending standards had been eliminated in an effort to increase revenue. By now, Obama’s plan to regulate the subprime industry is a moot point, as hundreds of lenders have gone out of business after being forced to buy back their terrible loans which defaulted almost immediately upon being made.

While holding lenders and mortgage brokers accountable may seem like a good idea, it does not go nearly far enough to hold those truly responsible for the foreclosure crisis accountable. Wall Street firms provided the money that was loaned, and they bought the mortgages from the lenders to securitize and sell to investors. Without holding the Bear Stearns, Morgan Stanley, and Lehman Brothers of the world responsible, new bubbles will just appear in other market sectors as the subprime pump-and-dump strategy is followed again.

And Obama’s plan does not even address the true first cause of the mortgage bubble: artificially low interest rate policies from the Federal Reserve under Chairman Greenspan. A historically cheap money policy and liquidity injections into the financial system could do nothing else than create a bubble somewhere, and real estate was all the rage. At worst, the Fed should have risen interest rates to deflate the bubble; at best, the Fed should be abolished for its role in creating and inflaming every market bubble of the past nearly 100 years.

Another proposed regulation is this:

Create Fund to Help Homeowners Avoid Foreclosures: Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.
Even hundreds of millions of dollars in fines against mortgage companies only comes out to an extra few hundred dollars at best of assistance for the millions of homeowners facing foreclosure, and that is not if the mortgage assistance fund is depleted by bureaucrat salaries. Also, any new potential penalties will be factored into mortgage rates and fees by the lenders, who will push the extra contingent liability costs onto the end consumers. It can only be assumed, as well, that the rest of this fund will be paid for through more inflation and borrowing from the Federal Reserve.

Disclosure rules are also a focal point of Obama’s plan:

Mandate Accurate Loan Disclosure: Obama will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
Mandating more disclosures is quite possibly the most useless proposal so far, as home buyers never read their disclosures anyway, and brokers who want to generate fees and homeowners who want a house they can not afford will sign or say anything to qualify for the loan they want. Mortgage applicants already receive dozens of pages of disclosures, even ones that specifically state they are getting an ARM loan and how ARM loans work; more disclosures will just add to the paperwork that is signed, never read, and filed away in a drawer for years until there is a problem making the mortgage payments.

Some of the more positive aspects of Obama’s plan include a small tax credit and allowing federal bankruptcy judges to lower mortgage balances for homeowners owing more on the loan than their home is worth. While the tax credit comes out to around $500, any tax break is better than no tax break, especially for lower income workers. And allowing judges to lower mortgages in bankruptcy cases would give borrowers an incentive to keep paying on their property if able, rather than walk away from a house in foreclosure.

Unfortunately, Obama’s housing crisis plan indicates his close alignment with the financial power centers on Wall Street. His plan will make the people pay for the bailout of investment firms by funding government bailout programs that will have to be paid for by more inflation from the Federal Reserve. As well, he wants to hold the lower-level facilitators (out of business lenders and out of business brokers) of the (out of business) subprime industry accountable, while not touching the loan funding and securitizing machines on Wall Street, from whom he has received many campaign advisers and contributions.

Article Source: Nick Adama, EzineArticles.com

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Democratic Presidential Candidate Barack Obama on the Housing Market and Foreclosure Crisis

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