Ok, so that is not exactly what President Obama said on July 21 when he signed the new Dodd- Frank financial overhaul bill into law. What he actually said was: “There will be no more taxpayer funded bailouts. Period.”
That statement sounded quite absolute, but perhaps the President should have left himself a little more wiggle room.
Less than a month after those words rolled off his tongue, the President has ordered that $1 billion authorized by the new financial overhaul law will be given to the Department of Housing and Urban Development (HUD) for an expanded mortgage bailout plan.
Additionally, the administration will funnel another $2 billion into the bailout using the taxpayer gift that keeps on giving – the Troubled Asset Relief Program or TARP.
The combined cash infusion is expected to help the Housing Finance Agency (HFA) Innovation Fund for the Hardest Hit Housing Markets and the Emergency Homeowners Loan Program provide interest free loans of up to $50,000 to as many as 400,000 distressed borrowers. The loans are intended to help the recipients pay their mortgage for as long as two years.
For the purpose of these programs, a distressed borrower is a person at risk of foreclosure due to experiencing a substantial reduction in income because of involuntary unemployment, underemployment or a medical condition.
There are probably a lot more than 400,000 distressed borrowers out there given the current state of the economy.
The U.S. unemployment rate currently stands at 9.5 percent. At least 14.6 million citizens are unemployed. Nationwide, 1 in every 397 properties received a foreclosure notice in July. RealtyTrac predicts that one million homeowners will lose their homes to foreclosure just this year.
What these distressed borrowers need are jobs, not government handouts.
Even if these programs work exactly as expected, all they will do is help 400,000 people stay in their homes a while longer. There is no guarantee that these individuals will not eventually lose their homes – and waste billions of taxpayer dollars – regardless of government intervention.
If the government would focus on creating jobs instead of creating a welfare state, perhaps these distressed borrowers would be able to take care of their mortgage payments without lining up to suckle at the government teat.
It is utterly ridiculous that the government solution to the housing crisis is to come in, pay a mortgage for a couple of years and just hope the foreclosure problem magically goes away. This goes beyond bailout, this is just plain boondoggle.
Even if we pretend for a moment that this plan will only help qualified borrowers who are truly in need and that every participant will eventually return the $50,000 loan of taxpayer money to government coffers, the program would still appear to be completely and totally inadequate given the magnitude of the current housing crisis.
The bottom line is that the government needs to quit throwing money at the problem and start addressing the issue which is perpetuating the crisis.
The primary problem now is not that people are failing to make their mortgage payments. The problem is that people do not have the money to make their mortgage payments. They do not have the money to make the payments because they do not have jobs.
As long as unemployment remains high and wages remain stagnant, no amount of mortgage bailout money is going to fix the housing market. All these billions of dollars will do is prolong the inevitable.
There is more pain to come for U.S. homeowners. We are in a housing slump that will take years to correct under the best of circumstances. If the government keeps interfering, it could take a lot longer.
Kristi Reed is a reporter for the Barrow Journal. She can be reached at firstname.lastname@example.org.