Ethics and morality in Obama's housing affordability plan

Ethics and Morality: Obama's Housing Plan

President Barack Obama won the presidential campaign in November 2008, on a platform of "change" in terms of how Washington D.C. politicians and bureaucrats conduct business. Now that he is in the White House, he is facing an enormous series of urgent economic challenges. Those challenges include: Americans are being laid off from their jobs by the tens of thousands every month; banks are not loaning money in many cases because they are in arrears; real estate values have plummeted; stocks on Wall Street have lost millions in value; and moreover, foreclosures are forcing thousands of people out of their homes. The issue that will be addressed here: what is the Obama Administration doing to address the housing crisis? What are the ethical considerations? There are several aspects to each of the solutions that Obama have proposed, and they will be reviewed in this paper, along with critiques from journalists and others.

Assessments of the Housing Crisis:

Writing in the Washington Post, Renae Merle reports that at the end of 2008 "...one in five U.S. homeowners who have mortgages" (about 8.3 million citizens) owed more than their homes were worth. At the end of September 2008, about 7.6 million people owed more on their homes than those homes were worth, Merle continues. In Nevada, an eye-popping 55% of mortgage-holding homeowners have negative equity in their homes.

Writing in the New York Times, Catherine Rampell reports that 62% of all the foreclosures in 2008 occurred in 4 states (Arizona, California, Florida, Nevada). That fact "takes issue with the media narrative that foreclosures are dangerously widespread," Rampell explains. Still, no matter that talking heads on cable news programs exaggerate the situation, with all the misery being experienced by homeowners, government help is needed, and Obama seems eager to provide that help.

Obama's Program: Who Benefits From the Plan?

On Wednesday March 4, two weeks after Obama put forth a generalized proposal to promote homeowner affordability ("Homeowner Affordability and Stability Plan"), the U.S. Department of the Treasury has released a detailed plan called "Making Home Affordable." The guidelines assert that Making Home Affordable (MHA) will provide assistance to as many as "7 to 9 million homeowners" (MHA) in several specific areas.

The MHA proposal gives the opportunity "Up to 4 to 5 million responsible homeowners to refinance"; millions of "responsible homeowners...who made their mortgage payments on time..." And through no fault of their own have seen their home value drop, will be able to refinance through Freddie Mac and Fannie Mae.

Under the Obama MHA plan, families could refinance their homes at a rate near 5.16%, substantially lower than their initial rate of 6.50% or higher. Beyond the refinancing and lower interest rate proposal, the Obama Administration's Treasury Department is working with FHA, FDIC, and GSEs will "undertake a comprehensive multipart strategy to prevent millions of foreclosures" - allowing millions of families to stay in their homes, especially at a time when millions of American workers have lost their jobs. There are several features to the $75 billion "Home Affordable Modification" Program to Prevent Foreclosures and Help Responsible Families Stay in Their Homes": one, up to 3 or 4 million "at-risk homeowners" could be helped; two, there will be "clear and consistent guidelines for load modifications"; three, judicial modifications of home mortgages will be allowed during bankruptcy "when a borrower has no other options"; four, "strong oversight" will be provided by the Federal Reserve, FDIC, HUD, Treasury and other federal agencies; and five, support for local communities will be offered through FHA programs, according to the Treasury press release (March 4, 2009).

Moreover, eligibility criteria for a Home Affordable Refinance include: the property must be owner occupied; the borrower must have sufficient income to support the new mortgage debt; and the first mortgage must not exceed "...105% of the current market value of the property" (MHA).

The latest information on the Making Home Affordable program focuses on homeowners at risk, including those "suffering serious hardships, decreases in income, increases in expenses" and "payment shock." And homes with an unpaid principal balance more than $729,750 will not be eligible for assistance from MHA. The program also provides incentives to help borrowers stay current; that incentive is in the form of "a monthly pay for performance success" which goes "straight towards reducing the principal balance on the mortgage loan" (this revenue can be as high as $1,000 a year for five years, "as long as the borrower stays current" on payments).

Another way in which this MHA program helps Americans has to do with those who do not need help with mortgages and who are not facing foreclosures. When any homes in any neighborhood are foreclosed and left empty, that lowers the value of the homes in the neighborhood and opens the door to crime and decay. To wit, keeping the neighborhood full of homes that people and families are actually living in is always a good thing.

Conclusion: What is Government's Moral Obligation to the People?

As to what government's moral obligation is to the American citizens - that depends on what side of the political spectrum a person is on. Many conservatives believe that government does too much for people, including many things that people should be doing for themselves. President Ronald Reagan used to talk about getting government "off our backs" while on the other hand, many see government as the potential solution to many social and economic problems.

The bottom line for many - in terms of moral obligation - is the fact that Americans rely on their government to: a) protect them from attacks from terrorists (which the government did not to prior to the attacks on 9/11); b) spend their tax money responsibly without corruption (which neither the Congress or the White House has done in recent years); c) only wage war when the nation is under direct threat of hostility (which it didn't vis-a-vis the Iraq War); d) be honest with citizens (which the government has not been - to wit, the executive branch has on numerous occasions over the past few years censored empirical science in the name of political ideology); and e) protect the Constitution (which the executive branch has not done in all cases, i.e., recent memos released by the Justice Department show the executive branch believed it could assume broad and unprecedented powers to respond to terrorism, ignoring the Constitutional authority of the Congress).