Mortgage Rescue Package – $7 Trillion In New Taxpayer Debt, Responsible & Irresponsible Treated Equally, No Uniform Application Or Outcome

Some of the specifics for the “Obama Mortgage Bailout” have been released today.

Many of the promises made by Obama during his speech in Phoenix two weeks ago have been long forgotten.

The first of the promises to fall victim to Obama’s Leftist Policies is the promise that the “Mortgage Bailout Program will not reward the irresponsible but will target relief for the responsible homeowner who has fallen on hard times”.

McAuley’s World Update (03/05/09): The Democrats in the House of Representatives have just defeated an amendment to the Mortgage Rescue Package that would have prohibited those who “lied” about their income on their mortgage application from receiving a “mortgage modification” or “principal cram down” – clearing the way for those who obatined “Liar Loans” or “NINJA Loans” to participate in this “rescue package”. The Democrats went on to defeat a second proposed amendment that would have prevented any lender who participated in “predatory lending” from receiving any “financial payments” from the Government for participating in this program. (Note: ACORN was one of the largest predatory lenders in the Nation – accepting up to $35,000 dollars per mortgage referral).  

The “Plan” contains no definition of “responsible”or “irresponsible” nor does the plan instruct or require the Government or Lenders to attempt to determine which group a “refinancier” falls into. There is absolutely no testing to determine if someone was irresponsible. There are no provisions outlining when an individual should be declined or refused a mortgage modification.

The plan contains a significant modification, a modification that will allow the “spectulators” to take advantage of this Government Boondoogle. Obama clearly claimed in his speech that “speculators will not be allowed to benefit from this program”.

The Obama Administration and the Democrats have elimnated the requirement that new “appraisals” be obtained prior to issuing “mortgage modifications” –  real estate speculators will profit from this move. A speculator who obtained a mortgage for 140% of a property’s value in 2005 (using a bogus property appraisal) can now refinance that property (which is currently worth 1/2 of the original  ”true value”) using the original “bogus appraisal” at taxpayer expense. Did Obama learn this trick from his former Campaign Finance Chairman – Tony Resko?

The Obama Administration is also forcing a “mortgage cram down” provision through at the cost of the American Taxpayer. The provision will allow Bankruptcy Judges to rewrite mortgages and eliminate mortgage prinicpal. This provision was rejected, on a bi-partisan basis, by Congress on three separate occasions last year.

The “cram down provision” lacks the specificity necessary to ensure a uniform application and result for all taxpayers

The “cram down” provision could end up costing Amertican Taxpayers  $7 Billion Dollars, doubling the National Debt.

The “cram down” provision is the one that will allow Bankruptcy Judges to intervene and rewrite mortgages, reducing the amount a borrower “promised” to pay back. THE CRAM DOWN PROVISION DOES NOT PLACE A LIMITATION ON A JUDGES ACTION. Under the current terms of this provision, a Judge could eliminate all “prinicpal” on a mortgage, if they so choose, leaving the American Taxpayer holding the debt and the irresponsible with a “free house”. 

I suspect Representative Maxine Waters helped write these provisions with the help of ACORN Mortgage Consultants.    

The Obama Administration wants you to think that when a Judge ”writes down” a Mortgage the debt just disappears –  in this instance, with the current Bank Bailouts,  it does not.   

Someone can actually go into Bankruptcy Court and ask for a Judge to “write down mortgage principal” because they can’t meet their debts: the House they can’t afford, 8 maxed out credit cards, three new cars, a pair of jet skis and a new boat. There is no examination as to “who was responsible and who is irresponsible” involved. It doesn’t matter if you are a “crack” addict – just submit the paper work and off you go at taxpayers expense.

The Obama Administration wants you to think that when the Bankruptcy Judge writes down the principal on a mortgage the debt just disppears. It does not, and in this instance, the taxpayers of this country will be asked to pay again and again.

Let me use some basic accounting to explain how this happens and how we, the taxpayers, will be on the hook for this money.

Lets say I borrow $1000 from you and I sign an IOU. I get your $1000. My IOU is an asset for you and a liability for me. If I keep my promise, I’ll repay the money (an asset). My $1,000 debt to you is my liability. 

One person’s asset is anothers liability. When you eliminate the liability you also take away the other person’s asset.

Under normal circumstances, if I were to declare bankruptcy my IOU would be worthless to you and you’d be out a $1,000. That isn’t the case at present.

Remember the “Bank Bailouts”? How could we forget? 

When the Bankruptcy Judge writes down the principle on the mortgage the Bank that owns the mortgage must reduce it’s stated assets by the same amount. If a Judge reduces a mortgage by $70,000 the Bank holding the mortgage has $70,000 less in capital or assets. This is the basis of the whole financial mess – people defaulting on mortgages they can’t pay throwing banks into insolvency. The US taxpayer is replacing that capital the Banks have lost on these “bad loans” through the various TARP and Loan programs.

As the Banks have their assets or capital written down by Bankruptcy Judges – the taxpayers will be asked to replace that capital with more cash or “loans” through TARP II. The “Bank Bailout” is taking taxpayer money to “recapitalize” the banks – or replace the money the banks have lost on these bad mortgages. Bankruptcy write downs will accelerate this process.

Now taxpayers will be asked to pay to “recapitalize” the Banks, the Banks don’t get the Houses back, which they could eventually resell, and the mortage holder keeps the house at taxpayer expense. The Taxpayers get nothing back – Under the old provisions at least the taxpayer could look forward to getting some money back when the banks eventually resold the houses.

The Obama Administration is trying to hide this fact from the taxpaying public. 

There are no provisions to repay the taxpayer at a later date, if the house, which is the subject of a “mortgage modification”, is sold at a profit. So if you assume a $70,ooo mortgage write down today,  an economy recovery in 3 years, and the subject house being sold in 5 for a $140,000 profit – the only thing the taxpayers will get is the ongoing bill for the $70,ooo write down. Thank you President Obama, Nancy Pelosi and Harry Reid!   

How does this “Mortgage Modification” debt reach the staggering amount of $7 Trillion Dollars? Consider this;

3 Years ago the average mortgage amount was approaching $250,000. Today the average house value has fallen to $170,000 – a drop of $80,000. The Obama Administration claims, in it’s own words, that this program is targeted to help 9 Million mortgage holders. (See: )  If 9 Million mortgages are rewritten or “crammed down” so they are not “underwater” the cost to the American Taxpayer would be:   

$80,000 (Eighty Thousand Dollars) x 9,000,000,000 (9 Million Mortage Holders) = $7,200,000,000,000,000 ($7.2 Trillion Taxpayer Dollars).

If you thinks things just couldn’t be worse – you’d be wrong.

The “Bankruptcy Cram Down” provisions lack specifics to direct the actions of individual Bankruptcy Judges. There are no formulas to be applied – leaving too much to the discretion and whim of the individual Bankruptcy Judge.

The “cram down provision” lacks the specificity necessary to ensure a uniform appication and result for all taxpayers.

Two individuals, one from, lets say, Tuscaloosa, Alabama and the other from Detroit, MI or Chicago, Il. appear before two different Bankruptcy Judges with identical mortgage problems, income and debts – one can be denied a principal write down while the other is granted a principal reduction. Clearly such a result is unjust.

The plan provides for interest rate reductions below current market rates! Why does the plan provide for below market interest rates?

The plan fails to acknowledge the fact that the millions of taxpaying Americans who will be asked to pay for this program are struggling to pay their own mortages – and are doing just that, paying their mortgages. These individuals don’t qualify for a mortgage interest rate reduction while the Obama Mortage Bailout Plan calls for interest rates as low as 2%.

Why do these individuals deserve an artificailly low interest rate, rather than the prevailing market interest rate.

Just another handout at Tax Payer expense?

Millions of taxpayers are currently paying 6% to 6.5% interest on their mortages – and these individulas will be asked to subsidize these artifically low rates –  adding additional insult to injury, some taxpayers will actually be asked to pay for this bailout while the Government reduces the amount of mortgage interest they can deduct on their own mortgage.  

Don’t worry! It is only taxpayer money!

The Administration’s approach to addressing every problem is the same. Bigger Government . More Spending.  Higher Taxes.

HAVE YOU NOTICED THAT EVERY TIME THE ADMINISTRATION PRESENTS A BILL – THAT BILL BECOMES “THE BILL THAT WILL FIX THE ECONOMY” – The Bill Must Be Passed Immediately. First it was TARP 2, then the “Stimulus/Pork Spending Bill, Then the $00 Billion Budget Bill, wow this bill will solve everything if we only pass it immediately.

Anyone want to bet that tommorrow “HEALTH CARE REFORM IS THE KEY TO RESOLVING OUR ECONOMIC RECOVERY”,  if only we can pass the bill immediately. All bets must be made in cash – I won’t accept Stocks or Bonds.  

This isn’t new – nor does it signify change – this approach has been called “TAX AND SPEND” for decades.

I, for one, am tired of the lies and the never ending bailouts.

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