Foreclosure/unemployment solution

Consider the first and last sentences of a Washington Post article from Friday March 26th entitled "Obama readies steps to fight foreclosures, particularly for unemployed."

" The Obama administration plans to overhaul how it is tackling the foreclosure crisis in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday."

and

"Administration officials say this refinancing program should not strain the FHA's already weakened finances because the effort will be financed with up to $14 billion out of the federal bailout program."

There are at least three points to make here. First, the administration assumes that the federal bailout program is on sound financial ground...at least enough to support the FHA. The article doesn't say whether FHA is being bailed out by the $700 billion bailout that Bush signed in the fall of 2008 or the $787 billion bailout that Obama signed in winter 2009. Neither one of these was offset by spending cuts, so are either of these bailouts on sound financial ground? This refinancing program may not strain the FHA's finances, but it will further strain the finances of the budget-at-large. It matters not from which federal pocket the money comes; they are both deficit spending.

Secondly, what right does any government official, elected or not, have to require private lenders to do anything much less how to run their businesses or to even create a public lending entity such as FHA? I have strained my eyes looking for the enumerated Constitutional power Congress has to do such a thing. I might be convinced that lenders who took bailouts and have yet to pay them back can be required to make such loan modifications, but certainly not any other lenders especially those who never took a bailout or paid it back.

Finally, while I appreciate efforts to keep the unemployed in their homes, wouldn't it be better for their self-esteem and the budget if they could make the payments themselves with their own money instead of relying on their unemployment checks which will eventually expire? Wouldn't it be better to create an environment where these people get back to work? A favorable job market requires a strong GDP growth rate.



I keep hearing that the economy is recovering, but a March 2010 radio news report stated that economists believe the 5.6% annualized GDP growth rate seen in just the last quarter of 2009 must be sustained for an entire year to reduce the unemployment rate by even a whole point. That good number was supported primarily by inventory changes and is not expected to last. An analysis by the NYT economist Paul Krugman in August 2009 showed that a 2% GDP growth rate is needed just to keep unemployment flat! Economists are only predicting a 2.4% GDP growth rate this year, so the unemployment rate may only slightly fall this year.


Instead of treating the symptoms of unemployment, one of which being imminent foreclosures, deal instead directly with unemployment by creating a friendly, pro-growth environment where businesses are able to hire the unemployed. This certainly does not include increasing the financial burden on businesses such as Caterpillar which expects an additional tax liability of $100 million thanks to the recently signed health care law. That is not just my opinion but is in their March 25th press release and regulatory filing. Add to them Deere & Co., $150 million; AK Steel, $31 million; 3M, $90 million; Valero Energy, $20 million; and AT&T, $1 billion.