Friday, March 28, 2008

Hillary's mortgage plan -- Just plain stupid

I usually do not get too partisan on this blog but I cannot stay silent about Hillary Clinton's ridiculous plan to "fix" the mortgate mess. I don't know why more economists aren't screaming from the rafters about how idiotic her plan is. She wants to freeze adjustable rates? All that's going to do is hit mortgage lenders even harder in the pocketbook, who are then going to raise rates and clamp down on extending credit to everyone, but especially the poor. So the lesson is, that if you got in over your head with a house you could never afford without a convoluted mortgage scheme, the terms of which you could ordinarily never fulfill, you're getting rewarded. If you're financially responsible and don't already have a home and need just marginally more credit to buy the house you want, too bad.

Heres some excerpts from a good article I read yesterday:
Sen. Clinton laid out new details of her plan to have the Federal Housing Administration purchase underwater mortgages -- those in which homeowners owe more than houses are worth -- from investors and lenders. Such a program could work in combination with a federally backed system to auction mortgages in default.

On Monday, she said simply that the FHA should "stand ready" to buy troubled mortgages. But she made clear in the interview that such purchases may be necessary to make sure auctions don't fail, which would further undermine confidence in the financial system.

Sen. Clinton didn't estimate the size of a government loan purchase program. Mark Zandi, chief economist of Moody's, estimates there are 8.9 million homeowners under water with $1.9 trillion in mortgage debt.

Treasury Secretary Henry Paulson Wednesday criticized the Clinton proposal, which harkens back to the New Deal's Home Owners Loan Corp. That agency helped families avoid foreclosure by replacing mortgages in default. It bought mortgages from banks with government bonds and then issued new, lower-cost loans to homeowners. "We do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity," said Mr. Paulson. "Negative equity does not affect borrowers' ability to pay their loans," and in the long run many homeowners will find their purchases "good investments" despite their current woes, he said.

For another good article on Hillary's idiotic plan, click here

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