Yet again, Team Obama is rewarding reckless behavior, punishing the 90 percent of responsible homeowners who are making good on their mortgages, and setting up a greater moral hazard that will surely lead to an expansion of bailout nation.But Larry, don't we need to keep housing as expensive as possible?
I’m talking about an add-on to HAMP, the $75 billion Home Affordable Modification Program, which has been a dismal failure. In fact, the entire foreclosure-prevention effort — including forgiveness of mortgage-loan principal — has been a failure.
The Office of the Comptroller of the Currency reports that nearly 60 percent of modified mortgages re-default within a year. And now comes a new, brilliant idea that if you live in your main residence, have a mortgage balance of less than $729,750, owe monthly mortgage payments that are not affordable (meaning greater than 31 percent of income), and you demonstrate a financial hardship, the government will subsidize you by offering TARP money to banks and other lenders to reduce your outstanding mortgage balance.
Former Bush economist Keith Hennessey highlights the outrage that Team Obama would actually subsidize people making up to $186,000 a year who have a mortgage balance of over $700,000. This isn’t even a middle-class entitlement. It’s an upper-middle-class entitlement. Actually, at $186,000, it’s virtually a top-earner entitlement, according to Team Obama’s definition of rich people eligible for tax hikes.
Bloomberg financial columnist Caroline Baum argues that lower home prices are the key to solving the housing problem. Popular blogger Barry Ritholtz says we need more foreclosures, not fewer, to solve housing. Both are correct.