Should Obama Help Banks or Homeowners?

I have a whole lot of time because I lost my job due to massive state budget cuts.

I did what the president strongly recommended and applied for a refinance. I paid $550 for an appraisal only to be told that my house has decreased so much in value that I will need to purchase mortgage insurance to get the refinance. A refinance that would cost me 4-5 thousand dollars that would be added to my principal on a home that I have already lost most of my equity in, does not make sense. But I was a good American and did what my president asked. Now I have to pay for the appraisal even though it does not make any sense to refinance. This additional cost this month makes it almost impossible for me to afford my mortgage payment. So basically it appears that the president's advice might force me into foreclosure.

I do not qualify for his housing plan because my loan is not backed by fannie or freddie.

Anyway it appears that all he was asking is the American taxpayer/homeowner just give more money to the banks that we have already given billions to.

He needs to encourage/force banks or mortgage companies to lower interest rates on existing home loans at no expense to the homeowner.

I am angry that the president took on the role of financial advisor to American homeowners before doing the research. Refinancing is not a feasible option right now for most of us.

I pray for my country.

Deborah of HI 3:40PM April 22, 2009

"This attacks the supply or inventory problem forcing prices down. It would take away a major negative driver of bank assets. Yes, but it still means the government has to do something with those homes.

The best solution would be to follow the RTC model by putting the properties together and then holding a fire sale to clear the market."

Isn't there something logically inconsistent with this solution? It only stops prices from moving down as long as the government holds on to the houses and doesn't hold the fire sale. Also, that isn't exactly what the RTC did. In the S&L Crisis the U.S. seized the banks first.

Housing prices will continue to fall until they are at their average from 1890-1997, or thirty percent from current levels. Trying to prevent this would be like trying to repeal the law of gravity.

The real question is who gets to pay for this mess. Realistically there are only two choices: the shareholders or the taxpayers. Since making the taxpayers pick up the bill creates a moral hazard problem I vote for the shareholders.

The solution is incredibly simple and was done 20 years ago with the S&L Crisis. Seize the banks:

"A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners."

http://www.nytimes.com/2009/01/19/opinion/19krugman.html?_r=1&partner=permalink&exprod=permalink

The question is not if the government is going to be supervising the banks, that's already a reality. The question is for how long, and to who's benefit? Let's bite the bullet, make the shareholders take their loss, and get on with our lives.

Mark A. Sadowski of DE 11:23AM January 22, 2009