An ou­tra­geous mort­gage en­ti­tle­ment pro­gram

The Washington Times Weekly - - Commentary -

Pres­i­dent Obama’s mas­sive mort­gage-bailout plan is noth­ing more than a thinly dis­guised en­ti­tle­ment pro­gram that re­dis­tributes in­come from the re­spon­si­ble 92 per­cent of home­own­ing mort­gage hold­ers who pay their bills on time to the ir­re­spon­si­ble de­fault­ers who bought more than they could ever af­ford. This is Mr. Obama’s spread-the-wealth pro­gram in action.

Team Obama is re­ward­ing bad be­hav­ior. It is en­larg­ing moral haz­ard. It is ex­pand­ing its wel­farist ap­proach to eco­nomic pol­icy. And with a huge ex­pan­sion of gov­ern­men­towned zom­bie lenders Fan­nie Mae and Fred­die Mac, Team Obama is tak­ing a gi­ant step to­ward na­tion­al­iz­ing the mort­gage mar­ket.

Re­port­ing from the Chicago com­mod­ity pits, my CNBC col­league Rick San­telli un­leashed a tor­rent of crit­i­cism over this scheme. Mr. San­telli said: “Gov­ern­ment is pro­mot­ing bad be­hav­ior. [. . .] Do we re­ally want to sub­si­dize the losers’ mortgages? This is Amer­ica! How many of you peo­ple want to pay for your neigh­bor’s mort­gage? Pres­i­dent Obama, are you lis­ten­ing? How about we all stop pay­ing our mortgages! It’s a moral haz­ard.”

All this took place on the air to the cheers of traders. Mr. San­telli called for a new tea party in sup­port of cap­i­tal­ism. He’s right.

Mr. Obama’s so-called mort­gage-res­cue plan amounts to $275 bil­lion in new debt that will have lit­tle if any last­ing im­pact on deeply cor­rected hous­ing prices or the mort­gage-de­fault prob­lem that stemmed from the in­sis­tence of gov­ern­ment to throw home loans at lower-in­come peo­ple. A mod­est re­duc­tion in mort­gage rates will have sight is in­cred­i­ble. There are no safe-har­bor pro­vi­sions to pro­tect mort­gage ser­vicers against law­suits if agree­ments are bro­ken. Own­er­ship of th­ese se­cu­ri­tized mort­gage pools is wide and far, span­ning the globe. Break­ing con­tracts is ex­ceed­ingly dif­fi­cult, es­pe­cially without any leg­is­lated le­gal pro­tec­tion.

Of course, banks that have whole loans can choose to mod­ify them if they want. And in some cases it’s much bet­ter to mod­ify than fore­close. But 70 Fred­die, the big win­ners here. Only their prod­ucts are el­i­gi­ble for mort­gage re­lief. Jumbo mortgages are not. Nei­ther are pri­vate-la­bel mortgages cre­ated by var­i­ous non­bank lenders. Fan and Fred al­ready run 48 per­cent of the mort­gage mar­ket. Mr. Obama’s pro­posal would greatly en­large that and move the mort­gage sys­tem to­ward gov­ern­ment na­tion­al­iza­tion.

What’s even more in­cred­i­ble is Team Obama’s stub­born re­fusal to have any faith in the free mar­ket. In some of the the year-ago pe­riod. And the me­dian num­ber of days it took to sell a sin­gle-fam­ily home dropped to 46.1 in De­cem­ber 2008 com­pared with 66.7 in De­cem­ber 2007. So in­ven­to­ries are drop­ping, the num­ber of days to sell a home are fall­ing, and sales are ris­ing in the wake of lower prices.

If the gov­ern­ment re­ally wants to help, in­stead of bail­ing out ir­re­spon­si­ble mort­gage hold­ers, it should sup­port new and younger fam­i­lies who want to buy starter homes and be­gin to climb the lad­der of pros­per­ity.

All this is free-mar­ket eco­nomics 101. And I say, let freemar­kets work. Let’s re­mem­ber that most folks — even those with un­der­wa­ter mortgages, where the loan value is more than the home value — do not walk away from their obli­ga­tions. They don’t want to wreck their credit — and their homes are their cas­tles. That’s the Amer­i­can way.

But if we pe­nal­ize the good guys and sub­si­dize the bad ones, we are un­der­min­ing the moral and eco­nomic fab­ric of this coun­try.

Lawrence Kud­low is host of CNBC’s “Kud­low & Com­pany” and is a na­tion­ally syndicated colum­nist.

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