Economists and housing market experts are saying that a $75 billion mortgage bailout program designed by the Obama Administration has backfired and actually harmed the housing market.
According to the New York Times:
"The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good. . .experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system."
That “'has the effect of lengthening the crisis,' said Kevin Katari, managing member of Watershed Asset Management. . . 'We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway,' and 'banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books,'" delaying a recovery in the housing market and the construction industry.
Banks will now be pressured to make even more risky loans. The House has approved President Obama's proposal to create the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that nudges the banks to make loans in low-income communities.”
Government pressure on banks to make loans in economically-depressed neighborhoods was a key reason for the mortgage meltdown and the financial crisis. Yet the Obama administration's proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness. The Community Reinvestment Act was a key contributor to the financial crisis.
The mortgage crisis was also caused by the government-sponsored mortgage giants Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.
But President Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”