#rsrh What is Obama’s mortgage refinancing proposal?

Ed Morrissey essentially asks that question while commenting on Obama’s SotU pledge to bail out underwater mortgages:

There are a lot of holes in this plan, not the least of which is why homeowners who are current on payments more than three years after the collapse need government assistance.  They may be underwater on their mortgages, but if they are making their payments, then they are at no risk as long as they don’t need to sell.  Their monthly payments gradually will eliminate the negative equity in their asset.  Refinancing will speed that up slightly by lowering interest rates, but if these houses were bought during the bubble, the current interest rate is probably low from a historical perspective anyway.  And to fix the negative equity, those homeowners would have to forego saving the $3000 a year to plow it back into the principal anyway.

Speaking as a holder of an underwater mortgage, the answer’s really simple: it’s a bribe, and a pander.  The bribe is obvious: “Here.  Have an extra $250 bucks a month. B-A-R-A-C-K O-B-A-M-A.  Remember the name on Election Day.” The pander is almost as obvious: “Hey, remember all those times when you watched as people who broke the rules got rewarded for it, while you’re sitting there getting penalized for believing in the system and not trying to fake it?  Remember how you said I should just default and make them refinance my mortgage, too – only you didn’t, because that would be wrong? Tired of being told that you can’t refinance, despite the fact that you’ve demonstrated that you’re a good credit risk?  Well, we noticed all of that, too.  And we’re here to help you.  Because you deserve it.”

Now, I am well aware that it sucks to be anybody who had the bad fortune to buy a house just before the bubble on residential real estate burst, and that the universe is not fair.  Which is why I don’t advocate for this kind of blanket housing bailout, and I agree with Ed: it’s a bad idea that Congress shouldn’t pass.  But if it does pass, if you want to know why so many people will go along with it then take another look at that pander above.  It’s a good pander, you see, because like most good panders it builds on things that are largely true*.

And where it’s a mistake for the administration is in that the administration seems to be assuming that anybody who takes the deal will feel sufficient gratitude towards the Democrats to vote for them in November.  I consider that highly doubtful: it may reassure wavering Democrats, but Republicans (and annoyed independents) are going to be largely happy to take the money and throw the bums out anyway.

Moe Lane

*The part that isn’t true is, of course, that anybody deserves the bailout.


  • Rob Crawford says:

    What it really means is that those of us who aren’t underwater are screwed.
    And it likely screws anyone looking to buy, as well. How anxious would you be to lend if the contract is subject to populist revisioning without warning?

  • Jeff Weimer says:

    One thing about refinancing: Once you do that, your amortization goes back to day one – it will now take longer to eliminate that negative equity than if you left your mortgage alone.

    And count me in the Republican camp. If I’m eligible (doubtful, I’m not underwater), I will happily use the opportunity to do what I was going to do anyway (except now it’s easier) and still vote ABO.

  • BCochran1981 says:

    Awesome. So I’m fortunate enough to own my home outright. I’ve spent the last 3 years watching the value of that home absolutely plummet. (In my area, for the original price of my home in 2003, I can now get a home close to DOUBLE the size.) I’m sure this will have a wonderful further impact on the worth of my home.

  • acat says:

    Jeff – that depends. I did a refi and changed out a 30-year-fixed for a 20-year-fixed at a lower rate. Monthly payments are about the same, and the bank was happy because they got a reset on the front-loaded interest payments.

    I do agree with you on two points. If this helps you, then do it, and vote ABO.


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