Even though the Obama administration has not yet released the guidelines for loan modifications that constitute part of his $275 billion housing-relief program, the program is already being faced with plenty of opposition. Obama’s housing-relief program will attempt to help struggling homeowners and curb the foreclosing of more homes. The plan calls for mortgage companies and investors receiving incentive payments to help borrowers who are at risk of defaulting. Many efforts that have previously tried to curb foreclosures have required that borrowers default to get help, but Obama’s plan calls for helping borrowers who haven’t yet defaulted, but are in danger of doing so. The guidelines that have not yet been released are likely to require that mortgage companies verify incomes or financial hardship claims by borrowers to ensure that they cannot afford to make their current mortgage payments. Another aspect of the president’s plan is that borrowers will receive $1000 a year for paying their mortgage payments on time after they are modified.
http://online.wsj.com/article/SB123517426207837283.html#video%3DF6CDA065-94E6-4B94-8BA6-95C86AD55CD3%26articleTabs%3Darticle
Obama’s plan has the potential to stop the downward spiral of home prices, and help 7-9 million people avoid foreclosure, but is it practical? Is it possible to only provide aid to those who genuinely need and deserve it? No matter how well this plan is executed, individuals who do not need or deserve aid will receive it, and this is the “moral hazard.” Obama states that no aid will be given to those who purchased homes that they knew they couldn’t afford, or to those who claim to not be able to pay their mortgage payments, but who really can pay them. Homeowners who have borrowed more money than they can afford in the past will also not be eligible to receive assistance, however there are ways that individuals may get around these restrictions. One possibility is that borrowers will stop making their payments so that it appears as though they cannot afford them. Also, instead of trying to make their income appear as high as possible on paper to receive loans, borrowers will now want to make their incomes appear as low as possible in order to get help. Obama’s guidelines for loan modifications will weed out some of the borrowers who do not fit the criteria of the plan; however there is no way to weed out every one.
On paper, this plan has the potential to prevent millions of people’s homes to be seized by foreclosure, but in practice it is not going to be as easy or foolproof. Obama can take as many methods as he can think of to ensure that only those fitting the criteria receive aid, but there will always be people who learn how to cheat the system. The president’s administration will have to create and adhere to strict screening guidelines if this plan is going to be successful. We will have to remain optimistic and hope that Obama’s housing-relief program will provide aid to millions of homeowners who actually need it, that it will stop the downward spiral of the housing market, and that it will prevent more foreclosure signs from being posted in the yards of homes in neighborhoods across the country.
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In Obama’s plan, people who can afford their mortgage won’t get help, just those who can’t. So people are not going to think as responsibly when deciding if they can buy a house or not because they know they are going to receive assistance. This is just going to lead people to buy extravagant homes because with assistance they can afford it. But what happens when the assistance stops? Since people aren’t going to start buying homes on their ability to pay, but instead their lack of, this cycle is going to start all over again once assistance is removed. In a way, this plan is just encouraging debt. But it should be the opposite; people should get rewarded for making realistic purchases and paying their bills on time, for being financially responsible. Yes, they have included an incentive of $1,000 a month for paying their mortgage on time after the modification. But what about the people who have been playing by the rules this whole time? This is unfair to those who did take steps to downsize so they could maintain their financial independence. This plan would have some positive benefits to those in trouble, but there needs to be something for those who have been paying on time all along. To make the citizens of this country that do pay their bills on time feel underappreciated and to lose their support would be detrimental to this nation during these hard times.
What happened to responsibility? Does anyone think about the consequences of their actions before doing them? Emily knows what she is talking about. A lot of people have never been fans of programs like this because they just can't get over the fact that most of these people put themselves in the positions that they are in. Many people took out loans for homes that they knew that they couldn't afford and the mortgage companies were dumb enough to give them out. That's what started this whole fiasco in the first place. Fanny Mae and Freddie Mac were the majority of the problem as they lent out loans to low income people for homes they knew might get defaulted. Why? Who knows? What is known are the problems that erupted. Human beings are intelligent enough to know limits. People should not try to buy a house that they simply cannot afford. Obama has this plan to stabilize the housing market but like the article states people are going to find loopholes and take advantage of the system. This just hurts all of the people who didn't buy the house of their dreams because they thought about it first and realized it wasn't financially feasible. They still have to pay for their mortgages while the people living in nicer houses than they deserve are given assistance. We should all hope that Obama works hard on this program to ensure that only the people who really need help get it. It seems as though the nice guy always finishes last. Is there even any incentive to be a nice guy in this day in age?
The question that really needs to be answered is, when these homes return to their value and the market recovers, who will reap the profit? The bailed-out owner? The answer should be no. When these bailed out homes are back on their feet, the money should be returned to the government, and possibly some interest payments made.
What will happen to the underwater owners is another issue. These are the people whose mortgage is for more than their house is now worth. The thing is, they can still afford their payments. Should these people be helped? According to law, they cannot refinance their mortgage, and now are helpless. Should law be changed, thus reducing incentive for lending? Or should they be left to hang while we help out those poorer who made the same bad choices? I say the latter. Responsibility should be enforced.
While that may sound detached and callous, it is not. The greater good will be done with this route. Doing that will open many new opportunities to new buyers. The bubble has burst. Consider that the value of a home worth $104,000 in 1994 hit $192,000 in 2006 (source: http://i.usatoday.net/news/graphics/housing_prices/home_prices.pdf) . This dramatic inflation of prices was not sustainable. That giant rise in prices lead people to believe that all homes were investments, that would lead to profits no matter what. Were they irresponsible for believing something that everyone else believed? For trying to set themselves up in life? Should we leave our neighbors without a safety net of any type for one mistake? I don’t believe that letting them completely on their own is not the answer, but neither is rewarding irresponsible decision making. There is no perfect answer to these questions, but to get anything meaningful accomplished, we must keep the greater good in mind and letting some personal ambitions take the back burner.
Is it practical?
The plan may not be entirely practical. Some people will undoubtedly attempt to take advantage of the president’s plan to help those having trouble making payments on their mortgages. However, the greed of these people should not prevent the plan from passing. As you said, the plan has the potential to help 7-9 million Americans. Without this help, many families will lose their houses. Strong neighborhood ties will be broken when families move to less expensive areas of the country. Children will need to switch schools in the middle of their education which could have serious consequences on their intellectual development. The possibility of a few people “slipping through the cracks” and getting aid that they may not actually need is something that Barack Obama has certainly considered. This though, seems like a fair trade-off. No matter what type of aid is proposed there will be some people that will try to take unfair advantage of it. If a couple families get aid that they do not deserve so be it; the country is in a state of crisis and something needs to be done about people losing their homes. The government will certainly need to impose strict regulations on how determinations will be made of whether payments can actually be made or not involving federal and state documents (tax statements, mortgage files, etc.). Whether this plan will prove to be an important step on the road to recovery for the American public or a huge misstep by the administration remains to be seen.
I am sure that we were all told as kids that we should “learn from our mistakes.” However, passing this housing plan would discourage people from learning from their mistakes. Since making outrageous housing purchases was a major contributor to the financial crisis that we are in today, we must do something to teach these negligent people a lesson, not reward them for being fiscally irresponsible. The plan is not directed to help people who can afford their mortgages obtain some help, but only for people who cannot afford to pay their mortgages. In other words, if one was fiscally responsible when buying their home, they will have to pay their mortgage in its entirety. But, if one made an irresponsible purchase, they will be helped by the government. This to me sounds like the government is sending out the wrong message. This is essentially eliminating consequences for people. Only exacerbating the situation is the fact that people are rewarded a $1,000 stipend for making timely payments on their mortgage. This is a bit soft when the other option would be to take the homes away from the delinquent homeowners.
Another negative aspect of this program is that I believe it would bring out the worst in people. Right now it is proposed that only people who cannot afford to pay their mortgages will receive help. This will inevitably cause people to try and obtain help by reporting lower incomes, or even quit a side job. This is also sending the wrong message because it is not providing people with adequate consequences for their irresponsible spending.
I agree that this plan has the potential to send a bad message to those who are not receiving assistance. The plan will provide help to those who have fallen on hard times, including those who have ended up in the situations that they are in because they bought homes that they knew they could not afford. They were able to do this because of the mortgage companies giving out loans to usually unqualified individuals. If people who were irresponsible when buying houses are receiving help, what does that say about those people who made responsible choices and have been able to keep up on their payments? Why shouldn't they start falling behind in order to receive assistance as well? Instead of Obama giving people who keep up on their payments after the payments are adjusted $1,000 per year, that money should be dispersed among homeowners that have made good decisions and have been able to keep up with their payments all along. This way, incentive would be given to prevent further homeowners from not making payments. It would also prevent individuals from dropping side jobs and falsifying a lower income to be eligible for this aid. Something has to be done about the housing market, but I think some changes need to be made if it is going to be this plan that helps.
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