Wednesday, February 18, 2009

The Daily Strike-2/18/09-Homes, Homes Again

Good afternoon. I'm writing an early Daily Strike today because Lady Strike and I are attending a hockey game this evening.

HOUSING PLAN: The big news of the day was the President's speech in Arizona unveiling the "Homeowner Affordability and Stability Plan." The multi-pronged proposal will cost upwards of $75 billion. The plan is intended to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.

So what will the plan specifically do? The basic plan is that the government will provide incentive for lenders to lower mortgage rates. For example, if a lender agrees to lower a borrower's payment so that it makes up no more than 38 percent of his or her income, the government would pay to lower the payments to 31 percent of income. (I got that example from the Washington Post). This part of the plan will presumably be introduced in Congress in the coming weeks.

The other key component of the plan assists those who have made scheduled payments on their loans, but whose houses have lost value. Currently, loans covered by Fannie Mae and Freddie Mac do not can not be refinanced if the borrower owes more than 80 percent of the home's current value. Under this plan, Fannie and Freddie (which of course, have been taken over by the government)can refinance mortgages if they do not exceed 105 percent of the home value. So, in layman's terms, you can get new terms on your mortgage even if you owe more than the value of your house. Because the government owns these two entities, the administration can pursue this action without additional authorization from Congress. (the program launches March 4th).

Two other key elements of the plan: First, there will be an incentive for lenders that modify troubled loans. The government will pay lenders up to $1000 if each time they restructure a troubled loan. Second, homeowners will also be eligible for incentives if they stay current with loan payments. The government will give up to $1000 per year to decrease the balance of the mortgage.

A couple of thoughts on both the problem and the proposed solution: The housing crisis, obviously, has a ripple effect that poisons the whole economy. When people can't pay their mortgages and their homes are foreclosed, they have lost their assets, and can't contribute any money into the economy. The Department of Housing and Urban Development estimates that 6 million homes will face foreclosure in the next three years. As Obama pointed out, home foreclosures significantly reduce the property values of surrounding houses. So to sum up, the problem is very urgent.

It also became more politically urgent due to the poor performance last week by Treasury Secretary Timothy Geithner in laying out a plan to save the financial and banking systems. The way I see it, Obama is taking a three-way approach to the economic crisis: the stimulus, the financial plan, and the housing plan. Now that the stimulus is done, his goal is to restore confidence through banking and housing reforms. At first glance, his plan seems to be specific and reasonable enough to help out in the short term.

The next question is whether the plan is politically viable. I'm pretty convinced that these changes can make it through the Democratic Congress. I expect there to be significant Republican opposition (maybe even unanimous again), because ideologically, conservatives are opposed to initiatives that reward those who, they feel, have "failed" (remember the car bailout fiasco?). You'd think that they'd be more receptive to a plan like this because it has some Republican-sounding components, like incentives to reward good behavior among lenders and borrowers. Also, the Republicans were the ones during the stimulus debate who said that the housing crisis had to be solved first. But it remains to be seen if the Republican party in its current form will support anything proposed by President Obama and the Democrats.

HOLDER: Eric Holder, the newly-sworn Attorney General, gave a speech today at the Justice Department saying that there is a "nation of cowards" when it comes to addressing the problems of race. Ten bucks says you'll see that quote on every conservative website in the next couple of hours. His point was that despite the election of our first black President, and despite our racial progress, we don't talk about our unresolved racial issues enough. I happen to agree with him on this, but I do expect people to call HIM racist for even mentioning this subject.

FAIRNESS DOCTRINE: The President made one statement today that will make Sean Hannity and Rush Limbaugh very happy. He articulated his opposition to the Fairness Doctrine. The Doctrine, which existed until the late 80's, mandated that radio stations had to give equal time to all political points of view. Of course, the right wing dominates talk radio, so many Democrats in Congress have sought to revive the doctrine. I personally don't think we need a fairness doctrine. I'm not usually a "free-market will solve this problem" type of guy, but in this case I am. Unlike health care and other essential items that conservatives say should be left up to the free market, no one NEEDS talk radio. Therefore, I feel like it's ok to let some radio shows fail. If liberals can't make money doing a radio show, it's probably because there isn't much of a demand. After all, we control the "blogosphere" and choose to vent our views in that venue. I'd love to see some comments on this for those who disagree. But quite honestly, it really doesn't matter who has the right to yak all day on the radio show when people in this country are suffering from economic malaise.

That's it for today, see you tomorrow, when Obama ventures out of the country for the first time into Canada.

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