The Amazing Growing Mortgage Relief Plan

The Obama administration rolled its mortgage relief plan this morning which is intended to combat the growing number of home foreclosures. Thus less than 24 hours after signing its $787 billion economic stimulus plan, a costly new government program rises to the forefront. In perusing the details of this home mortgage rescue plan, a $50 billion price-tag is being mentioned. While that doesn’t sound like a lot of money compared to recent spending bills, a billion seconds ago put us square in 1958, a billion minutes ago Jesus was alive, a billion hours ago our ancestors lived in the Stone Age and a billion dollars ago in Washington at current spending levels was just 8 hours 20 minutes ago. The Wall Street Journal reports that the actual plan will cost an initial $75 billion and:

“A total cost of the effort was not immediately clear, though it could eclipse more than $275 billion because of new commitments to Fannie Mae and Freddie Mac.”

So, in addition to the now $75 billion initiative to help at-risk homeowners, the government will be doubling its preferred stock purchases in both Fannie Mae (FNM) and Freddie Mac (FRE) from $100 billion to $200 billion each. In addition, the White House is raising the imposed size limits for Fannie and Freddie from $850 billion to $900 billion each. Thus, the plan with a cost originally speculated to be around $50 billion, actually will cost more than five times that much! Of course, politicians would argue that much of this money is an investment and not just an outlay. In fact, the President is expected to say that ultimately, this will cost us (the taxpayers) nothing:

“This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.”

In this era of our political economy, it is probably too much to ask that the government allow market forces to find a bottom in housing. This morning saw the release of January’s housing starts numbers which were well below expectations, a necessary development in a market over-saturated with inventory. Starts are down 56% from a year ago and 79% from the building peak three years ago. If the government feels compelled to do something in order to speed recovery along, additional tax credits for home buyers would have been more likely offered a better solution. What are we going to do as a nation if this spending does not work? An unappealing and likely option is to continue spending and taxing, taxing and spending.

Not to be insensitive to those who have unfortunately lost their homes because of job loss or some other circumstance, but where does this leave the people who played by the rules and bought a house with payments that they could afford? Do they now take the logical response, hide their money and stop paying their mortgage? We certainly hope not, but when will “Atlas Shrug” and say enough is enough?

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