Foreclosure Fantasy Bailout & Rick Santelli

February 20, 2009

How much more money do we (can you say Obama?) think that we can GIVE AWAY (as in PRINT more) without some serious consequences? Or, have we already crossed the Rubican? Obama is proposing another $275 BILLION as in more than a quarter TRILLION to bail out our neighbors who can’t make their mortgage payments. Why?

Rick Santelli went off on Obama’s foreclosure plan on Thursday’s CNBC show.

And when I say he WENT OFF, that’s exactly it. Rick Santelli and the traders on the floor of the CBOE expressed outrage over the notion they may have to pay their neighbor’s mortgage. Ahh, aren’t we our brothers keeper? Of is that taking the pinciple a bit too far? The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.

And this is the best that we can do?

The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. The proposal to guarantee modified mortgages is a variation of an idea backed by the FDIC. The administration plans to spend as much as $100 billion of the second $350 billion installment of the Treasury’s financial-bailout fund on home-loan initiatives.

Some 1.5 million foreclosures might be prevented this year in a program that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, Bair has estimated. The government would then absorb as much as 50 percent of any loss if the rewritten loan defaults again.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said today in a report. The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, according to the Seattle-based real estate data service.

If this proposal was a trial balloon, it didn’t get off the ground.

There has to be some place where we simply say that we can’t save the world, we can’t make everyone rich, and we can’t insure that everyone will be bailed out and all bills taken care of in some fashion. It’s a foreclosure fantasy as far as I can tell. And after looking at the Rick Santelli rant (video) I believe most will think the same.

Written by Ernie · Filed Under Daily Commentary