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    Obama Backs Bailout Measures for "Unfair" Mortgages

    03/26/2008

    In his economic address today, he addressed the housing markets:

    Over 2 million households are at risk of foreclosure. Millions more have seen their home values plunge. Many Americans are walking away from their homes, which hurts property values for entire neighborhoods and aggravates the credit crisis. To stabilize the housing market and to help bring the foreclosure crisis to an end, I've sponsored Senator Chris Dodd's legislation creating a new FHA housing security program, which will provide meaningful incentives for lenders to buy or refinance existing mortgages. This will allow Americans facing foreclosure to keep their homes at rates that they can afford. Now, Senator McCain argues that government should do nothing to protect borrowers and lenders who've made bad decisions or taken on excessive risk.

    And on this point I agree. But the Dodd-Frank package is not a bailout for lenders or investors who gambled recklessly; they will take their losses. It's not a windfall for borrowers, as they will have to share any capital gain. Instead, it offers a responsible and fair way to help bring an end to the foreclosure crisis. It asks both sides to sacrifice, while preventing a long-term collapse that could have enormous ramifications for the most responsible lenders and borrowers, as well as the American people as a whole. That's what Senator McCain ignores. For homeowners who are victims of fraud, I've also proposed a $10 billion foreclosure prevention fund that would help them sell a home that is beyond their means or modify their loan to avoid foreclosure or bankruptcy. It's also time to amend our bankruptcy laws so families aren't forced to stick to the terms of a home loan that was predatory or unfair.

    Expanding the role of taxpayers in mortgage financing, in the form of new powers at the FHA, is a bailout. In particular, it bails out lenders by providing them with government "incentives" to restructure loans. And who, exactly, determines what constitutes an "unfair" home loan?

    Our friends at Heritage have a more detailed analysis of the Dodd-Frank plan that Sen. Obama is endorsing. Heritage's David John notes that the Dodd-Frank plan rewards home flippers and that the overall program is " essentially a government buyout of problem mortgages disguised as a refinancing plan."

    In a debate earlier this year, Sen. Obama said the government should not bailout home speculators but he's endorsing that approach now.