2009 February 12 Thursday
Obama Wants To Subsidize Mortgage Payments

Some subset of the in-over-their-heads mortgage holders will get a partial federal bail-out.

NEW YORK (CNNMoney.com) -- The Obama administration is looking at subsidizing the mortgage payments of struggling borrowers before they default, according to sources familiar with the discussions.

This plan subsidizes imprudent borrowers and imprudent lenders.

One of the goals is to prevent housing prices from declining. But doing that just slows the correction process.

Assisting borrowers before they default would help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

"This will help put a floor on home values," said one person familiar with the negotiations.

When prices have been inflated to ridiculous bubble levels then prices must come back down to Earth. Trying to prevent the complete deflation of the housing bubble just delays the inevitable.

Also, propping up debtors is a bad idea when the biggest financial problem we face is too much private sector debt. We need to deleverage as rapidly as possible. Recovery isn't possible without deleveraging.

Share |      By Randall Parker at 2009 February 12 11:00 PM  Economics Housing


Comments
Wolf-Dog said at February 13, 2009 4:58 AM:

It's not so much the prevention of the deflation of the housing bubble, but it's the starvation of the ordinary citizens (10 % on food stamps already, and maybe 20 % in a few more years).

Obama needs to find a way to help people survive. One way is for government to take action to BUILD housing for every citizen. In this century of science, in the most advanced country in the world, I don't see why every citizen should not be entitled to a small apartment, food, electricity, water, etc.
HOW should the government build this minimum infrastructure of subsistence? Change the laws so that all hardened criminals should be forced to work and build these things instead of staying locked in a cell and doing nothing despite the fact that it costs $20,000 per year to keep an inmate in prison.

Anon said at February 13, 2009 5:55 AM:

"It's not so much the prevention of the deflation of the housing bubble, but it's the starvation of the ordinary citizens (10 % on food stamps already, and maybe 20 % in a few more years)."

Please, the poor are obese.

"Obama needs to find a way to help people survive. One way is for government to take action to BUILD housing for every citizen. In this century of science, in the most advanced country in the world, I don't see why every citizen should not be entitled to a small apartment, food, electricity, water, etc.
HOW should the government build this minimum infrastructure of subsistence? Change the laws so that all hardened criminals should be forced to work and build these things instead of staying locked in a cell and doing nothing despite the fact that it costs $20,000 per year to keep an inmate in prison."

Worst idea ever...

Gae Tilton said at February 13, 2009 8:31 AM:

Helping ONLY people who are about to or could be in trouble affording a payment is great, but WHAT about us who have been in the foreclosure status, who can make reasonable payments, but never enough for the lenders. My house is now appraising for 30 to 50,000 dollars less than what I owe including all the fees tied to proceedings, and If something isnt done SOON, myself, as well as millions more will be on the list of losing a home I have owned for years. All these promises of helping people IN foreclosure sure did sound GREAT but when does it happen, after all is lost??? WE need HELP NOW!!!!!!!!!! The Tarp second half needed to be on the presidents desk before he took office, I believe I speak for all in foreclosure, or who have lost their home, Where is the immediate help, Our lenders won't wait for indecision, so either can we!!!!!!!!! Thanks, Gae from Ohio

Anon said at February 13, 2009 8:39 AM:

Posted by Gae Tilton on February 13, 2009 08:31 AM:

Sorry about your situation, but that isn't my problem. And I don't want my tax dollars used to pay for your problems.

Daniel said at February 13, 2009 8:57 AM:

I agree with Wolf Dog, we should definitely bring back slavery.

I'm not kidding.

RKU said at February 13, 2009 9:07 AM:

This is silly! Just consider the vast costs of supervising hardened, dangerous criminals on building worksites. This is the main reason prison is so expensive, and obviously guarding them in small cells is vastly cheaper than doing so under less efficient working conditions of job locations spread out in major cities.

On the other hand, just shipping them off to the international organbanks would generate huge one-time revenues as well as eliminating those heavy ongoing expenses. A real win-win economic proposal for America!

Wolf-Dog said at February 13, 2009 1:22 PM:

I only meant that the hardened criminals in prison, should do enough work to pay for the $20,000 per year that the taxpayer spends to keep them in prison. I did not say that I want to bring back slavery!

Shay said at February 13, 2009 1:47 PM:

The idea of inmates building homes makes sense economically if they build modular home components in prison.

It could be done humanely and there is certainly a school of thought which sees mental benefits in being occupied in mind and body - rather than doing nothing but working out, gossiping and being otherwise idle.

As for the mortgage subsidization, I think it would make sense if there was some kind of test to filter out the greedy people buying homes on interest only loans that were WAY over their heads. It was their gamble to lose.

Xenophon Hendrix said at February 13, 2009 9:58 PM:

It makes sense to me that we have two possible situations. One, people are panicking, and houses are selling below what their market value would be if people weren't panicking. In that case, I can see where the government stepping in to prop up prices for a while makes sense.

Two, houses are overpriced and a bubble is deflating. If this is all bubble, I don't see how government action can stop it in the long run. The price will fall, or money will inflate, or housing stock will be destroyed. If my understanding of economics is correct, something will happen to bring supply and demand back into balance.

averros said at February 17, 2009 1:55 AM:

Inmates building housing? Oh, yes, back to the USSR. They had it.

The catch is... you don't want to live in houses built by slaves. They do fall apart pretty quickly, and things like a piece of metal rod soldered in instead of a water pipe - in a place which is inaccessibe without tearing a wall apart, - were quite common. The first thing a happy new apartment dweller did (after 10-20 years of waiting to get the apartment assigned) was to start a major renowation and repair.

It's a pity so many Americans are totally ignorant of the world around them... they'd knew that the most stupuid ideas of how to herd and force people into the bright new future were tried already - and failed disastrously.

Bob Badour said at February 17, 2009 5:54 AM:

averros,

You assume a lot on the basis of no evidence whatsoever. Your posts would be more persuasive if you argued from a position of knowledge and fact instead of a position of ignorance and assumption.

Chris Roberts said at February 17, 2009 1:54 PM:

*** "One of the goals is to prevent housing prices from declining." ***

Isn't the real goal to pay off all those left-wing Obama voters by getting them cheaper mortgages? The most overly extended ethnic groups, after all, are the ones most likely to be traditional Democrats.

This isn't about financial recovery - it's about our new Age of Kleptocracy. How appropriate that we elected a Kenyan to lead it.

Randall Parker said at February 18, 2009 9:20 PM:

averros,

Some American companies use prison labor to very successfully make a large assortment of products. Since the companies have profit motives they find ways to get good work out of the prisoners.

It's a pity that arrogant condescending Russian libertarian immigrants are so totally ignorant of the real America.


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