John “no can do; no way” Boehner Exemplifies Ignorance and Insensitivity of Republicans

Speaker of the House John Boehner (R-OH) reacted negatively (no surprise there) and insensitively (less of a surprise) to the news that President Obama is proposing new legislation that would expand on a refinancing plan announced last October by directing federal mortgage giants Fannie Mae and Freddie Mac to allow refinancing for mortgage-holders even if their homes are underwater by any amount. But the plan could not be offered to homeowners with mortgages privately held by banks. The new legislation would allow those homeowners to refinance as well, with the associated costs covered by a fee on major lenders.

Boehner criticizes the plan because “none of the president’s previous proposals to help the housing market has worked.” That may be true and the Obama administration is to blame. However, what Boehner doesn’t seem to get is the current proposal is designed to help homeowners with underwater mortgages that have been making their monthly payments on time and are up to date. While previous plans also were designed to help homeowners with underwater mortgages, the loan-to-house-value was limited to 125%. That covers only a small percentage of homeowners who have watched while home values have tanked during the past four years.

I am one of those with a loan-to-house-value greater than 125%. My FICO score is above 800. Yet, I can’t refinance and take advantage of historically low interest rates because of the arbitrary loan-to-house value limitation of the current program.

Homeowners like me have played by the rules whereas other targeted plans to help homeowners were designed to help those in foreclosure by reducing the principal so it becomes a “freebie” for the homeowner, or lower the interest rate. These folks have not played by the rules because they missed payments or just decided not to make them yet these are the folks helped by current government mortgage assistance programs. The problem here is most of these homeowners have gone through or are at the door of foreclosure and in no position to continue to make mortgage payments even after loan modification.

Speaker Boehner, I ask whether you have ever heard of “moral hazard?” Moral hazard occurs when a party protected from risk behaves differently than it would if it were fully exposed to the risk. It arises because an individual or organization does not take full responsibility for its actions so that the consequences of bad behavior do not befall on that party. Instead, responsibility passes to another party (the banks; the public) that covers the cost of the risky behavior. The recent bailout of troubled homeowners in foreclosure is an example of moral hazard.

Why should a homeowner who can stop making payments and modify their loans continue to make the payments? In fact, there is a whole new cottage industry that has been created to help such homeowners skirt their responsibilities. The best known is “Strategic Default.”

Homeowners like me are not asking for a bailout or loan modification. We simply ask for fairness – a subject that is anathema to Republicans. We simply ask to be able to refinance our underwater mortgages without being told by Fannie or Freddie that we can’t because the loan-to-home value is greater than 125%. We simply ask to be able to take advantage of today’s historically low interest rates just like homeowners in foreclosure.

I believe President Obama missed the boat to turn around the economy in the first few months of his administration with regard to housing because programs were developed to help those who, at best, would be in a marginally better position to pay their mortgages on time. Moreover, whatever money they saved on monthly payments after loan modification was probably used to keep them out of any future foreclosure situation. That doesn’t help to stimulate the economy and provide the necessary boost  through an improved housing situation. What’s worse is it simply delays the foreclosure process that is needed before home values can start to recover.

Those of us patiently waiting during the past four years for some help know that the money we save on our monthly payments will be used in large part to stimulate the economy and the economic effect will be ten times greater than heretofore. We are the ones who have paid our monthly mortgages on time and will use the money to buy things. You know, maybe do that home remodeling project long delayed and help create jobs in housing and construction. Maybe we’ll buy a new flat screen TV or computer and provide jobs in the private sector.  Isn’t that what we need to jump-start the economy? We are the ones who will do it because we have the financial wherewithal to continue making our mortgage payments without government assistance.

The Republicans have become so blinded by their desire to defeat President Obama that they have lost touch with average Americans. They think they know what is best for us, but it seems to me they are more concerned with things like the banks having to absorb the money lost by administering the new housing program by paying a fee. Their raison d'être is to beat Obama without regard to how their intransigence harms the average American.

The mind set of Republicans reminds me of an old Zen saying:  “If you understand, things are just as they are; if you do not understand, things are just as they are.”

Blog posted by Steven Mintz, aka Ethics Sage, on February 6, 2012