The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Cramer and Morici – Why the Stimulus and Obama’s Mortgage Plan Won’t Work.

Posted by iusbvision on February 24, 2009

UPDATE March 2011 – Cramer said that a plan had a chance at working if there is a system to help the toxic assets with mortgage holders and the banks. It didn’t happen so the hope he mentioned has been dashed. At 2:30 Cramer starts talking about what Obama should have done with the banking plan. Cramer nailed it, why Obama didn’t do this….. well Dick Morris understands why. Look him up in our “Mortgage Crisis” category.

Jim Cramer and University of Maryland economist Pete Morici explain why the stimulus plan wont create many jobs and why Obama’s Mortgage Plan takes the wrong approach and wont help the housing market. Jim Cramer is one of the people who was talking about this crisis pretty far in advance.

Essentially Rick Santelli is right that the plan needs to help all Americans not just constituent groups who got subprimes that they had no chance of ever paying off  or rich borrowers who got caught while trying to “flip” multiple houses. See What Rick has to say HERE, it is essentially the same thing that Jim Cramer and Dr. Morici are saying in the video above. It is also what we at IUSB Vision have been saying since Feburary 3rd.

There are also some lenders who had balloon payments or a balloon interest rate in some loans guaranteeing that the buyer would default. Those lenders should be prosecuted.

Santelli, Cramer, Mirici and IUSB Vision are not alone in our thinking.

Bloomberg Financial News:

Mortgage Plan Aids Liars About Income, Amherst Says
By Jody Shenn

Feb. 20 (Bloomberg) — The Obama administration’s mortgage- modification plan offers the most aid to homeowners who “really stretched to buy their house and lied the most about their income,” Amherst Securities Group LP analysts said.

The plan calls for government payments before and after loans are reworked to mortgage servicers and lenders including mortgage-securities investors, as well as borrowers, Amherst’s Laurie Goodman and Roger Ashworth wrote in a report today. The proposal also will “badly misalign” the incentives of servicers and bondholders, they wrote.

“This program needs to be retooled,” the New York-based mortgage-bond analysts wrote. Amherst is a securities firm specializing in trading and advising investors on home-loan debt.

Under Obama’s plan, a borrower who qualified for a 6 percent interest-only “stated income” loan of $250,000 by claiming income of $45,000 a year while actually making $37,500 would see payments cut by $2,625 annually through lender and government subsidies, according to their report. A borrower who actually made $30,000 while claiming to make $45,000 would pay $5,700 less a year to meet the debt-to-income ratios sought.

“The borrowers that really stretched to buy their house and lied the most about their income receive the largest break in payments,” the analysts wrote.

This is why Santelli had a cow on the air and did his rant. Those who cheated on the bottom end and on the top end will benefit the most, those of us who cut back and struggled to barely keep up with mortgage payment’s get the shaft.

It’s a PITI — Why Obama’s Mortgage Plan Doesn’t Work by Mark Lieberman

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