The recent news that the Obama administration is considering a plan on mortgage refinancing is the latest disturbing event from an administration that is deeply struggling. In the first place, irresponsible borrowing at unrealistically low rates is what caused the economic turmoil that the country is experiencing at the moment.
These types of programs are simply lengthening the process of foreclosures without giving any solution for the basic and more important problems. The programs only provide loan changes for delinquent loans but decreased rates are not helpful if mortgage owners are not earning at all.
The programs have shown to be unhelpful to the economic condition. Instead, it has kept more people in their homes for an extended period of time even if they were unable to pay their mortgage. This situation is only building pressure on the house market rather than solving its problems. This further deepens the segment of people with bad credit that cannot afford to stay in those homes.
Economies and markets do not really recover at its core until they are given the chance to move freely. What is happening right now is that the government is putting a band aid to a wound that is gushing with blood.
It is therefore the President’s responsibility to think of other ways to improve the economy. Simply lowering the rates for present mortgage owners with good credit standing will generate extra savings to spend on other goods and services. But, new homeowners cannot benefit from low rates because the loan to value ratio is underwater and banks cannot provide a good rate.
To illustrate this plan, a 4.58% mortgage that will move to 3.50% may produce around $1000 in savings. This amount can be spent for other needs and even some wants. Instead of charging the banks with taxes so that the government can gain monetary control and use it on terrible policy, why not put the money in the control of the middle class citizens and give them freedom to make use of it? In short, why can’t the government just let go of the money to deserving individuals in order for them to spend it and stimulate the economic situation?