Want the Interest Rate of Your Dreams? Just Stop Paying Your Mortgage!!!

That's the message coming across loud and clear in the Obama administration's plans to help "distressed" homeowners. Ideally, people who have defaulted on their home mortgages and are close to foreclosure will be given the opportuinity to refinance through Fannie Mae or Freddie Mac (sheesh . . . do we ever learn?) at interest rates UNDER 5%. This is sure music to the ears of those who bought more home than they could reasonably afford, and are now on their knees pleading with Messiah Obama for help, but as you can imagine, it has many others stark raving mad. On one national newscast tonight, a woman was interviewed who just finished paying off the mortgage on her home for good, and at an interest rate that was, let's say, a TAD higher than 5%. She was understandably upset because although she was responsible (i.e. made her payments on time, purchased a home within her price range, made sure her credit was good so she could get a fixed rate rather than subprime), it's the irresponsible ones who are set to be rewarded. At a time when this woman should be celebrating and feel that a load has been taken off of her shoulders by paying off her mortgage in full, she feels cheated, and understandlably so.

Unfortunately, there's more to it than that. Let's consider Man/Wife #1 who are in good shape financially and are current on their house payments. Their mortgage rate is 6.5% or so fixed. Because they are current on the payments, they would not qualify as "distressed" homeowners and would therefore be ineligible to refinance at the lower rate through our good pals Fannie and Freddie (who by the way, have both been lining Obama's pockets quite generously since his 2006 Senate run). Just down the street from our first couple lives Man/Wife #2. They earn far less income and have rotten credit, so they were given a no down payment, subprime mortgage. The subprime period ended a few months ago, their monthly housing payment skyrocketed, and they are now seriously in arrears, with the bank about to commence foreclosure on their home. However, it's none other than Fannie and Freddie coming to their rescue, refinancing them at a fixed rate even far lower than rates offered to those with a six-figure income and spotless credit. At first, Man/Wife #1 are furious, but then they figure that instead of raging at the system, they might as well play along and use it to their advantage.

Do you see where I am going here? Man/Wife #1 simply need to stop making their mortgage payments. After a few months past due, the bank will start threatening foreclosure. Once that happens, voila! Man/Wife #1 are now "distressed" homeowners and can get the Fannie/Freddie refininancing at a much lower rate than if they had continued making their payments on time.

Many "well to do" people throughout the nation are already poised to take full advantage of this "distressed" homeowner assistance program. Even two months ago, shortly after Obama's election, I read a column in Kiplinger's where the author reported that he had recently attended a dinner party with mainly A-list people who were hardly in a financially precarious situation. The main topic of conversation among many of the guests was that once Obama unraveled his plan, they would purposely stop paying their mortgage so they could get their handout like everyone else. The topic then shifted to things they could do with the money they "save" from not paying their mortgage, such as a shopping spree at Neiman Marcus and the dream vacation to Europe they've always wanted to take.

This is a classic illustration of exactly why conservatives and libertarians staunchly oppose all of these government assistance and social welfare programs. It's not because we have a cold, uncaring attitude towards the poor and downtrodden, but rather because in reality, such utopian programs always backfire. There will always be plenty of ingenious, self-serving people who take advantage of such programs for their own benefit, often at the expense of those who the programs were originally intended to help.

But wait a minute- isn't that precisely why we have a subprime mortgage crisis in the first place, along with the accompanying economic meltdown? Who really benefitted from the politically correct (yet economically unsound) idea that home ownership is a right, and that we should thus force banks to lend to groups who are "underrepresented" in home ownership? Those from the underrepresented demographic themselves? No, they've lost their homes to foreclosure and have learned, in the most painful way possible, that if something sounds too good to be true, there's probably a good reason why. The ones who REALLY benefitted were the mortgage brokers, the predatory lenders, the credit default swap holders and underwriters, etc. In fact, I'm willing to bet that some of those exact same people are among the ones foaming at the mouth right now at the propect of another opportunity to use the system to handsomely enrich themselves, this time by purposely defaulting on their mortgage in order to get the refi rate of their dreams.

So far, everything this new administration has proposed for restoring the economy amounts to nothing more than pouring dirt on dirt. The problem is that eventually, the dirt pile becomes so huge that we all suffocate on it. As much as I am looking forward to 2012 and the end of this entire Obama farce, I am simultaneously frightened at how much further harm will have been done by then.