On Wednesday morning in Phoenix, President Barack Obama unveiled his $75 billion (and maybe more) home mortgage crisis plan. The package is a grab-bag of provisions. The main ones aim to refinance mortgages for 4 to 5 million "responsible homeowners," to set up a "stability initiative" to help 3 to 4 million "at-risk homeowners," and to reduce overall mortgage rates by committing more money to Fannie Mae and Freddie Mac. Obama also noted his support for changing bankruptcy rules so judges can lower home mortgages for borrowers in bankruptcy. Overall, the details are, at this point, vague. And there's no telling if any of this will work--and arrest a possible death spiral in the real estate market. Policy wonks and partisans will argue over the various components. But what was apparent was Obama's skill as an effective policy pitchman.
The speech hit several important themes for Obama: community, populism, and responsibility.
Community. Obama essentially said that it takes federal intervention to save a village, and that we're all in this foreclosure mess together, like it or not:
I also want to be clear that there will be a cost associated with this plan. But by making these investments in foreclosure-prevention today, we will save ourselves the costs of foreclosure tomorrow – costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole. Given the magnitude of these costs, it is a price well worth paying.
To keep that death spiral at bay, everyone has to pay--even those taxpayers who have behaved responsibly and lived within their means in homes purchased wisely or apartments rented prudently.
Populism. Obama maintained his plan would not benefit the crooked and shifty speculators and lenders who helped create the crisis:
It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsibility, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. In short, this plan will not save every home.
And he took a swing at the bankruptcy laws that favor the rich:
My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value – as long as borrowers pay their debts under a court-ordered plan. That’s the rule for investors who own two, three, and four homes. It should be the rule for folks who own just one home, as an alternative to foreclosure.
The audience cheered.
Responsibility. The party is over, he declared, and we must all get real:
Our housing crisis was born of eroding home values, but also of the erosion of our common values. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on rising prices; and by leaders in our nation’s capital who failed to act amidst a deepening crisis.
So solving this crisis will require more than resources – it will require all of us to take responsibility. Government must take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. Individuals must take responsibility for their own actions. And all of us must learn to live within our means again.
His call for responsibility drew perhaps the loudest applause of the day. Yet what about those who already have lived responsibly and within their paychecks? Well, Obama said, get cracking and refinance that mortgage. This plan supposedly will make that easier. But politically, it's savvy of him to be something of a finger-wagging scold, if he's going to tap into taxpayer funds for billions of dollars to save a home-owning system that went crazy. This way, he doesn't come across as a permissive enabler throwing your money at their problem.
As with the Obama stimulus plan and the Obama Wall Street bailout plan, eventually the Obama housing rescue plan will be in a position where it can be measured in terms of success or failure. But that won't happen for months, if not longer. For now, it's just another bold and very expensive effort to stem a fundamental economic problem (which might still grow in size). The policy is tough to judge at this point. (What if the near-default borrowers saved by the plan lose their jobs in three months and re-default?) But in tone and politics, Obama appears to have gotten the rollout right. And that's--literally--a start.