• Home
• Personal Finance
• Economy
• New School
• Asked & Answered

• ABOUT
• FAQ
• RESOURCES
• ADVERTISE
• CONTACT

Don’t Believe the Spin!

Don’t believe the spin or propaganda coming from the financial sector and right wing conservative pundits when it comes to the mortgage crisis and President Obama’s Homeowner Affordability and Stability Plan.  There seems to be a double standard when it comes to bailing out homeowners and financial conglomerates.  Conservatives, who hate the plan, are using words like “moral hazard” and the financial industry is trying to discredit the plan by saying it aids people who lied about their income.  The plan forces the financial industry, particularly the mortgage industry, to take a hit and they obviously don’t like that.  The mortgage industry should take a hit because they had a major role in creating this financial crisis.

I have read the plan.  It is trying to accomplish two things.  First, it is trying to force interest rates down for people with “troubled mortgages” which would result in lower monthly mortgage payments.  There is no mortgage debt forgiveness - people are still obligated to pay their mortgage.  Second, it is trying to force mortgage rates down for everyone so that refinancing a mortgage may be more affordable.  That is good for every homeowner.  Ultimately, the plan is trying to stabilize the housing market by lowering the foreclosure rate.

Did most of these people screw-up?  Sure, but many of them were also victims of fraud by unscrupulous mortgage lenders and brokers.  The people with “troubled mortgages” did not game the system or ‘pull the wool over the eyes’ of mortgage lenders.

Mortgage foreclosure or the threat of foreclosure could easily apply to anyone of us because of a disability, unemployment or insurmountable health care bills.  There is a concept in ethics and religion called “Ethic of Reciprocity”.  Most of us know this ethic as “do unto to others as you would have them do unto to you.”  Kathleen Day of the nonprofit Center For Responsible Lending said it best:

This is the financial equivalent of what Hurricane Katrina did to New Orleans. Did they know they were living below sea level? Yes. Does that mean we shouldn’t help them? That’s ridiculous.

If we don’t do anything it will impact the rest of us for a long time.  Millions of foreclosed homes flooding the housing market would further destabilize/depress home values.  Our most valuable asset, our home, would be worth even less than current home values.  We would be facing widespread instances of “negative equity” (where home values are less than outstanding balance on mortgage) and huge decreases in net worth. 

It is one thing to criticize the plan and provide alternatives but to criticize the plan through misinformation and propaganda (particularly during a crisis) and not provide alternatives is a profile in cowardice.  I have been reading and hearing conservative pundits blame ‘people who go gamble in Vegas and fail to pay their mortgage’ or people who lied about their income on mortgage applications.  They have been bloviating about how we are creating a “moral hazard” by bailing out people with “troubled mortgages”.

A moral hazard is when an individual or institution does not bear full consequences of their actions and as a result may not change their behavior in the future.  Funny, I don’t remember hearing conservatives talk about moral hazards when we were bailing out financial conglomerates and their CEOs.  It is OK for financial conglomerates to get a tax giveaway and CEOs keep their jobs but it is not OK for families who are struggling to keep a roof over their head to get government assistance.  That sounds like a double standard.

Conservatives and Wall Street PR firms will be spreading misinformation and lies about who benefits from the plan.  This Bloomberg article is a classic example.  The article reports on a study released by a “securities firm specializing in trading and advising investors on home-loan debt.”  This firm’s credibility has to be called into question because it has a vested financial interest in the mortgage backed securities market.  The study states that people who lied about their income will benefit the most for the President Obama’s plan

This is a red herring and defies logic.Sure, there were some people, probably insignificant number, who lied about their income.  So we are to condemn the plan because a small number of people lied about their income.  Most people who entered into a mortgage intended to make monthly mortgage payments - you don’t enter into a mortgage to default on it.

The people that have entered into a “troubled mortgage” are suffering the consequences.  They are destroying their credit histories and are losing, or potentially losing, shelter.  These are extremely stressful circumstances for people.

Now is not the time to demonize people using misinformation to further ones ideology or financial interests.  In a our time of crisis, can we have an honest policy debate?  Implementing a “divide and conquer” strategy is not in the best interests of our country. 

Here’s a prediction: the next demon that conservatives will use if they haven’t used it already is that ‘illegal immigrants’ will benefit from Pres. Obama’s plan.