New York Banks got bailed out. So did automakers. So why not struggling homeowners?
The question has struck a raw nerve across the country, with critics saying the Obama administration’s latest housing rescue rewards people who bought homes they couldn’t afford. Others counter that the taxpayer-financed plan will slow spiraling home prices and avert a deeper economic disaster.
The debate captures the strong emotions stirred up over who benefits as the government tries to fix the financial crisis. It’s likely to remain on the front burner for months as lawmakers consider other contentious issues — like whether bankruptcy judges should be given the power to impose changes on borrowers’ home loans.
“I feel like I’m doing the right thing paying my mortgage, and now apparently I have to pay my neighbor’s mortgage, too. People are really angry,” said Kim Guymon, a stay-at-home mom who bought a three-bedroom home with her husband in suburban Seattle in 2001 and has watched it drop $150,000 in value since last summer.
Rescuing people whose homes are worth less than they own on their mortgages doesn’t sit well with Robert Bechler, either. Still, the 37-year-old flooring contractor said he sees little choice.
“If they don’t bail those people out, it’s just going to get worse. It’s a necessary evil, I suppose,” said Bechler, who with his fiancee just bought a house in Cape Coral, Fla. for $92,000 after waiting years for prices to fall.
The rescue plan unveiled Wednesday by President Barack Obama offers $75 billion in incentives for banks and investors to reduce struggling home borrowers’ interest rates and make other changes to loan terms. The money will come from the second half of the $700 billion federal financial bailout. The goal is to keep 4 million homeowners out of foreclosure and halt free-falling home prices.
To qualify, lenders and mortgage investors would have to agree on a lower interest rate that would be designed to reduce the borrower’s mortgage payments to 38 percent of their pretax income. The government would then provide financing to bring that ratio down to 31 percent.
Another piece is designed to help borrowers who are still making their payments on time, but want to refinance into lower mortgage rates.
Republican lawmakers and conservative pundits immediately denounced the plan as an affront to free market principles and said it promotes irresponsible borrowing.
Rick Santelli, a reporter for financial network CNBC, compared the government’s actions to those of communist Cuba during a dramatic, televised rant Thursday from the floor of the Chicago Mercantile Exchange.
“The government is promoting bad behavior, America!” he said.
Supporters of the plan are pushing back.
“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,” said Kathleen Day of the nonprofit Center For Responsible Lending.