Obama's housing plan effectiveness and outcomes

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.

Obama's Program: Why is This Plan Good? Why is This Plan Bad?

This is - on the surface anyway, at the outset - a good plan because it helps those who have been faithfully making payments to keep their homes, and encourages those who are struggling to reach out to lenders who are tapping into the MHA program. An important part of the "American Dream" has always been about owning one's own home, and the recent nightmare of economic crisis has taken homes away from millions of people. Many Americans see it as the duty of government to provide whatever assistance it can provide within reason to keep people in their homes. And because the falling home values and the failing banks were not due to the incompetence or negligence of the homeowners themselves in most cases, it seem fair and equitable for Obama to carve out a plan to lift those struggling mortgage-payers up out of their quandary.

This is not a good plan in terms of the growing deficit the U.S. Treasury faces over the coming years. Obama has publicly recognized the potential danger through an increase in the federal deficit; an estimated $1.75 trillion estimate for the deficit this year causes GOP House leader John Boehner of Ohio say "We can't tax and spend our way to prosperity..." (Associated Press, 2009).

While Boehner and other conservatives criticize Obama's rescue plan for the economy and specifically criticize the housing plan put forward by Obama's Administration, still others contend that all of the recovery programs Obama has put forward amount to "socialism." And so for people like Rush Limbaugh (who gets more publicity for his commentary than anyone currently in a leadership position with the Republican Party) and Sean Hannity and others in the conservative media, Obama is trying to turn the country into a socialist state. That is a bad thing, if it is true, and it is even bad if enough Americans believe it but it is not true. Dark rumors and belligerent or negative rhetoric on the part of those opposed to Obama's housing plan does not help the average American's overall shaky feeling about the future. And yet the dialogue between supporters and detractors of Obama's is necessary and in the long run, productive, because all aspects of any massive government spending program needs to be thoroughly vetted.