Fannie and Freddie to the Rescue?
Copyright 2011 Susan Stamper Brown
I’m not a fan of most television commercials, but in particular, I cannot stand those annoying drug commercials which promise to cure a particular ailment as long as you can live with the potentially fatal side effects.
As the saying goes, “Sometimes the remedy is worse than the disease,” and this could not be truer than with this administration’s intervention into companies afflicted with the economic cancer spreading around the globe. Many of these companies were deemed “too big to fail,” and without our help, we were told the economy would implode. Are we better off considering the sputtering economy, high unemployment, rising poverty, and a worsening mortgage crisis? Is this remedy worth the economic misery? I, for one, think not.
Three years ago, had the administration focused on job growth and pro-business policies, Obama would have had a second term all but locked up by now. But, that is not how they roll. Instead, they make decisions based on the assumption they know what’s best for us, and then go one step further to insult our intelligence by repackaging with shiny paper and glitzy bows a different version of the same failed policies.
A perfect example is the Obama administration’s “cure” for the underwater mortgage crisis. You might remember back in 2009, the administration introduced, with much pomp and circumstance, the Home Affordable Refinance Program (HAMP), promising that roughly 4 million of the estimated 11 million underwater mortgages would be saved from certain death. The end results were startling.
Back in March, the National Taxpayer’s Union (NTU), self-ascribed as “America’s independent, non-partisan advocate for overburdened taxpayers,” urged lawmakers to terminate HAMP because they claimed it “has proven a colossal failure that has done more to harm than help debt-laden homeowners.” At a cost of $75 billion taxpayer dollars, NTU found that only a little more than a half million mortgages were saved through loan modification, and, of those, the U.S. Treasury anticipates 40 percent to default.
NTU claims that the program is an abject failure as participants “will often be left with larger outstanding debt, worse credit scores and less home equity.” It might make you sterile too, but that’s all. I am often reminded these days of the late President Ronald Reagan’s opinion that the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.”
One could only hope that this is the end of the story, but it gets worse. Now there is a new version of HAMP that involves two pillars of financial success: Fannie Mae and Freddie Mac.
The Heritage Foundation’s senior research fellow in retirement security and financial institutions, David C. John, predicts the new version will be equally unsuccessful, but the side effects could be disastrous considering that the cost of the refinancing the underwater loans “will be borne by Fannie Mae and Freddie Mac.”
The government already controls Fannie and Freddie; taxpayers get a double bill when the cost of the loans will be added to the cost of the never-ending Fannie and Freddie bailouts.
Having already received upwards of $160 billion in bailouts from overburdened taxpayers who may not live long enough to see it repaid, Fannie and Freddie recently requested $13 billion in additional bailout funds. It is estimated that taxpayers may be on the dole for another $50 billion in bailouts by 2014; nonetheless, twelve executives were recently rewarded with salary and bonuses totaling around $35 million for the years 2009-2010.
Using mismanaged and dysfunctional organizations like Fannie Mae and Freddie Mac, which are currently on life-support, as a tool to rescue drowning mortgage holders is not the cure this country needs. A simple home remedy in the form of allowing free market capitalism to work its magic might just do the trick — and maybe a bowl of chicken soup for good measure.