Tags: Stockman | Obama | Mortgage | Socialism

David Stockman: Obama Mortgage Refinance Plan is 'Crony Socialism'

Wednesday, 08 February 2012 08:56 AM

President Barack Obama's plans to help homeowners refinance their loans is, in reality, "crony socialism" designed to help big banks cushion themselves from possible defaults, says David Stockman, a former White House budget director under Ronald Reagan.

President Obama aims to help "responsible" homeowners, including those who owe more than their homes are currently worth, save an average $3,000 a year by refinancing their mortgages at attractive interest rates.

Congress would have to approve such a measure, although Stockman says the plan is probably dead on arrival (D.O.A.) and deservedly so.

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"It is D.O.A. It should be. It's just one more phase of 40 years worth of meddling and tampering in the housing market that has totally destroyed its ability to function," Stockman tells Yahoo! The Daily Ticker.

The plan, arguably available to all, won't help but a few anyway.

"There are 110 million households in this country, 35 million are renters, it does nothing for them. Thirty million own their homes free and clear with no mortgage, it does nothing for them. Of the 50 million with mortgages, 40 million aren't underwater and have recently refinanced or have no reason to refinance," Stockman says

"So what you are basically doing its picking out a pool of 10 million households with mortgages that are underwater or deeply underwater, and you are basically going to come in and offer some free money and again interfere with the market's ability to sort this out."

What it will really do is help big banks conveniently get bad mortgages off their books.

"This is ultimately at the end of the day a bailout for JP Morgan and Wells Fargo," and other big underwriters of second mortgages and home equity lines, Stockman says.

"Those [second liens] are in great jeopardy because of homeowners way underwater on primary mortgages and are likely to default or throw in the keys at some point down the road."

"Either we are a market, capitalist economy or we are not," Stockman says, adding Obama's plan to use taxpayer money to help out a few is "the worst kind of crony socialism."

Other experts say Republicans in Congress will kill off the proposal's chances for survival due to its increased participation of government in the housing sector.

"The president pretty clearly signaled that [the program] would need some kind of congressional action," says Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods, according to U.S. News & World Report.

"To the extent that it does, I think it's D.O.A."

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