Obama's Mortgage Plan Could Destroy Middle Class Home Ownership

Barack Obama is trying to "stop the bleeding" when it comes to the number of people losing their homes by implementing a controversial mortgage program (called an "affordability" and "stability" plan). In the future, this plan could destroy home ownership for everyone except the extremely wealthy.

The plan is riddled with government in both money and intervention, but it doesn't stop there. The biggest problem with the plan may not be the dollars spent, but the demands placed on the mortgage market place. There is a section in the $75 billion dollar plan that provides coercive measures to lower the costs for those with mortgages that they are struggling to pay.

Some of these measures would have been described as "socialistic" just a few years ago, but are now considered fairly common in the bizarre political culture we live in today. These include:

• A Shared Effort to Reduce Monthly Payments. This would be a "joint effort" between government and mortgage companies to lower monthly costs.


• "Pay for Success." This essentially subsidizes mortgage companies at a rate of up to $1,000 per lender to keep people in their homes.


• Incentives to Help Borrowers Stay Current. This is the borrower's cousin to the program immediately above. With this program, the government will pay borrowers $1,000 a year for staying current.


• Reaching Borrowers Early. This pays lenders to modify distressed borrowers before they go into foreclosure.


• Home Price Decline Reserve Payments. This would essentially be an insurance policy to help protect against home values declining.

For a person who believes in free enterprise like I do, the above policies are offensive enough. But at least these measures largely compensate mortgage companies for some loss of income and inconvenience. There is one provision, that comes with very little explanation, that could make middle class home ownership a thing of the past. In the words of the plan itself, this provision will "allow judicial modifications of home mortgages during bankruptcy for borrowers who have run out of options."

This provision sounds innocent enough and, unlike many of the other measures, has little direct cost to taxpayers. In the long term, however, this simple provision could devastate middle class home lending because you will have judges arbitrarily deciding whether all other options have "run out," lowering interest rates at will, or forcing decreased payments on lenders. These decisions will be done by a person who has no vested interest in the process and often no knowledge about the dynamics of the lending process. As a result of this bill, many lenders will likely increase the already high standards for home ownership or simply make home ownership only accessible to the very rich. This is contrary to the objectives of Barack Obama, who has built his career on increasing home ownership to every income group, but is the typical results of the latent effects to fundamentally bad public policy.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Wall Street Hits Main Street at the Football Stadium

We have heard all the stories about how problems on Wall Street is having a negative effect on the neighborhoods we live in. Just today, that story hit a little close to home. There has been a great deal of local excitement about Team Texas of the All American Football League. Recently, I interviewed several of its players and it appeared they had developed a substantive league that could become quite successful.

It was going to have decent (but not outrageous) salaries (up to $100,000 a year). It included players you could be proud of -- you had to be a college graduate to play on a team. In many respects, it was like "graduate school" for college football. You know how successful college football has been.

On March 13th, the league released the following statement:

The All American Football League (AAFL) announced today the postponement of its inaugural season until 2009. The League will continue to build upon the foundation that has been established, and will continue to discuss opportunities with potential investors.

AAFL sponsors have committed to remain on board for the 2009 season. Currently, the League has corporate partnerships with New Balance, Baden Sports and Rogers Athletic. Also still in place for the 2009 season are a national radio partnership with Touchdown Radio & SportsDay Productions, and an Internet broadcast partnership with PlayOn! Sports, a division of Turner Broadcasting.

"We are so very fortunate to have built partnerships with companies who are partners in the truest sense of the word," said Keenan Davis, AAFL VP of League Operations and COO. "We sincerely appreciate their support as we progress toward our new goal of a 2009 inaugural season."

This story came from the Canadian Press:

The league's chief executive officer, Marcus Katz, said economic conditions forced the decision to scrap plans for this year.

"I invested 29 million dollars in cash to roll out the operations of the league," Katz said, adding he was owed "a lot more money" by a student loan company.

"When I told the board I would subsidize the league, that was before the bond market collapsed," Katz said.

Wall Street has not hit our neighborhoods and Main Street, but even our local football stadium.

I liked the concept and hope it is able to make a come back.

Here is a recent interview I had with Mike Pede of the league.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.