Political opportunism over mortgages: here they go again

It is an election year and here the politicians go again with bids to win votes by destroying the United States housing market. In 2004, President George W. Bush led the way with a bid to move four million additional US households into home ownership that they could not remotely afford. In 2012, President Barack Obama leads the way to try to limit the return of some or all of those households back into the US rental market where they truly belong.

Despite significant price reductions across the nation, the US housing market still has a significant way to go. Prices almost certainly must decline a further 10 per cent, following the 20 per cent that has already occurred, in order to clean out the  bubble that pulled house prices upwards in excess of 30 percent between 2004 and 2007.

In February 2012, the continuing disequilibrium in the market in home ownership is enormous.  According to CoreLogic’s most recent data, some 10.7 million residential properties have underwater mortgages.  This represents 22.1 percent of all housing loans, or $699 billion. Some 42 percent of all borrowers with loans in foreclosure have not made a single mortgage payment in two years.  Now President Obama and 49 state prosecutors have coerced five big banks into rewarding these delinquents for not paying their bills:

‘the politicians know an election-year windfall when they see it.  Ally Financial, Bank of America, Citigroup, J.P.Morgan Chase and Wells Fargo promised to devote a mere $1.5 billion of the $25 billion to alleged victims of wrongful foreclosures between January 1, 2008 and December 31, 2011.  The rest of the loot will serve the political agenda of paying off favored home owners – er, voters – with principal reductions, refinancing programs and foreclosure forbearance.  The states and the feds will also get nice cash payments.  Think of this as one more giant political stimulus package – Congressional approval not required.” Editorial, ‘$25 Billion Bank  Job’ The Wall Street Journal, February 10, 2012

Washington is stealing this money from bank shareholders and investors in mortgage-backed securities.  Some $10 billion of the loot will go toward principal reduction for delinquent borrowers or for those on the brink of  foreclosure with loans issued by private lenders. From past experience, this will be money flushed down the sewers, since most of the homeholders in question do not have a cat in hell’s chance of holding on to those homes.

Some $3 billion of the settlement will go to refinance homeholders who pay their bills but who owe more than their home is worth. A further $7 billion will go to ‘other forms of relief,’ including loan forbearance for the unemployed, ‘anti-blight’ programs, ‘transitional assistance,’ and other equally crude transfer payments.

Nor will this be the end of La Cosa Nostra extortion in the housing market.  The settlement will not prevent states or the feds from pursuing more theft opportunities as the government puts out its cancer cells ever more deeply into the United states housing market.  TARP funds will be used to bribe Fannie Mae and Freddie Mac to write down mortgage principal – a political payoff to the likes of Newt Gingrich, no doubt. The White House is already pressuring an insolvent Federal Housing Administration to underwrite loan financing for underwater borrowers with private mortgages.

Outrageous as these settlements undoubtedly are, they will not even dent the disequilibrium in the housing market. $25 billion is peanuts when measured against underwater mortgages that hover on $700 billion.

But the Electoral College votes bought by this distasteful settlement are priceless in the eyes of  manipulative politicians who will mud-wrestle their way to victory in the November 2012 elections.

Tags: delinquent borrowers, house market disequilibrium, mortgage crisis, November 2012, Stimulus IV, underwater borrowers