House in Foreclosure

For the better part of a year people on all sides of the political and economic theory spectrum have been saying the economic meltdown cannot be fixed until the mortgage mess is cleared up. Now Barack Obama is taking action to do just that. But is it enough?

That’s been the question asked of every action the previous and current administrations have taken trying to respond to the recession and it’s entirely appropriate this time. Obama’s plan could cost $275 billion over time and will help a maximum of around nine million homeowners — some under water (owing more on their house than it’s now worth) — others facing foreclosure.

The plan is bigger and broader than expected but nevertheless came under fire from consumer groups for falling short, and wealthy homeowners for not helping them. Seriously.

The Wall Street Journal (land of extraordinary quotes — normally on it’s opinion pages) has an article detailing why some homeowners feel like they’re being left out. That’s because they are. Here’s some of the Journal’s article:

“While real-estate professionals applauded the refinance provisions, which the White House says could help four million to five million homeowners, lots of borrowers wouldn’t be eligible. For example, the refinance provision is limited to borrowers whose mortgages are owned or securitized by Fannie Mae or Freddie Mac, the government-backed mortgage companies. That essentially shuts out wealthy borrowers who would like to refinance but can’t because they own expensive homes financed with so-called jumbo mortgages, which are too large to be owned by Fannie Mae and Freddie Mac.”

How big is too big? So-called jumbo or non-conforming loans are from $417,000 and up. Big for Boise but bupkis for Brooklyn Heights or Babylon. The Journal found a few angry house-rich folks:

“Steve Rosenberg, a 44-year-old institutional stock broker in Chicago, has been trying to refinance his $815,000 option adjustable-rate mortgage for months. But his bank is requiring him to put an additional $150,000 of equity into his home, something he is reluctant to do because his income has been cut in half over the past year. For jumbo borrowers, he said, the government’s message is, ‘You’re on your own.’”

Well, yeah. Forgive me for being a little confused here but if the entire economy is stuck in reverse and most economists believe the housing crisis is a significant reason why, then don’t we all benefit from stabilizing housing prices and clearing the bad mortgages from the system? Not that Obama’s approach will do that entirely but judging from the “expert” response it seems a reasonable start to tackle homeowners in the bottom 80% of the income ladder before helping a guy with an $815,000 mortgage.

It’s one of those “you can’t have it both ways” deals. You can criticize the government for using taxpayer money to try and stimulate the economy and staunch the mortgage bloodbath but you can’t then turn around and complain that the government is NOT using taxpayer money to help wealthy people refinance their mortgages.

Surely there’s plenty of blame to go around. Once the economy is  actually working again.