Obama: I wanna help Homeowners--Is this you?

There could be some interesting angles here. For example, if you are a small business owner do you use income or adjusted gross income? I like the parts where incentives are being offered to modify loans and to mortgage servicers. This might actually provide some motivation for action.

Wouldn't it be the patriotic thing to do to refinance mortgages?

Wide-ranging $75 billion plan will use government money to subsidize rates and insure servicers against falling home prices.

The Obama plan calls for:

* Helping borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments.

* Creating a $75 billion homeowner stability initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

* Providing multiple incentives to servicers to modify loans and to proactively help at-risk borrowers while they are still current in their payments.

* Creating a $10 billion fund to protect investors and servicers against further home price declines.

* Requiring all financial institutions receiving government funds to participate in a standardized loan modification program, while seeking to have all federal agencies that own or guarantee loans also apply the guidelines.

* Allowing judges to modify mortgages during bankruptcy, a measure the financial industry has strongly opposed.

* Providing more Treasury Department backing of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and expanding the number of mortgages the agencies back.

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Obama: Aid 9 million homeowners

Wide-ranging $75 billion plan will use government money to subsidize rates and insure servicers against falling home prices.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: February 18, 2009: 10:05 AM ET

NEW YORK (CNNMoney.com) -- President Obama is unveiling a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments.

The long-awaited foreclosure fix marks a sharp departure from the Bush administration, which relied mainly on having servicers voluntarily modify troubled mortgages.

Obama, meanwhile, will make it easier homeowners to afford their monthly payments either by refinancing the mortgages or having their loans modified. The president is vastly broadening the scope of the government rescue by focusing on homeowners who are still current in their payments but at risk of default. And he puts billions of federal funds into enticing servicers to modify the loans of those who've already stopped paying.

The program contains a mix of carrots and sticks for mortgage servicers and investors, both of whom have been seen as resistant to modifying loans. The program would not only give servicers $1,000 for each modification, but would give them another $1,000 a year for three years if the borrower stays current. It will also give $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

But the administration is also wielding a big stick. It will work with Congress to amend bankruptcy laws to allow judges to modify mortgages, a step community advocates say is badly needed but that the financial industry abhors.

"In the end, all of us are paying a price for this home mortgage crisis," Obama was expected to say in a speech Wednesday. "And all of us will pay an even steeper price if we allow this crisis to deepen -- a crisis which is unraveling homeownership, the middle class, and the American Dream itself. But if we act boldly and swiftly to arrest this downward spiral, every American will benefit."

The Obama plan calls for:

* Helping borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments.
* Creating a $75 billion homeowner stability initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.
* Providing multiple incentives to servicers to modify loans and to proactively help at-risk borrowers while they are still current in their payments.
* Creating a $10 billion fund to protect investors and servicers against further home price declines.
* Requiring all financial institutions receiving government funds to participate in a standardized loan modification program, while seeking to have all federal agencies that own or guarantee loans also apply the guidelines.
* Allowing judges to modify mortgages during bankruptcy, a measure the financial industry has strongly opposed.
* Providing more Treasury Department backing of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and expanding the number of mortgages the agencies back.


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Are the Democrats peddling voodoo economics?

Voodoo economics: a slanderous term used by President George H. W. Bush in reference to President Reagan's economic policies known as Reaganomics. Now known as "trickle down economics" by democrats. Bush used the term voodoo economics to categorize Reagan's strategy of extreme supply side economics. One of the early tenants of supply side economics was that that across-the-board cuts in income-tax rates might raise overall tax revenues.
It now appears that the new theory being espoused by the Obama administration is the use of extreme demand side economics. The theory being that each dollar of government spending can increase the nation’s gross domestic product by more than a dollar. In some arguments the multiplier is as high as 1.5 times.

This has me thinking two things. First, if this is true why don't we spend two trillion dollars instead of one trillion? Second, why are savings in such ill repute that no one is saying a single word about savings. The argument being used right now is that savings do not add to demand--in other words if people save then they don't spend. As I look at past bull markets, they are always preceded by savings. Prior to the latest bull market in the U. S. the savings rate soared to 8 percent. More recently, saving rates have dwindled to zero percent and sometimes less than zero.

I don't think it is a crazy to assume that over consumption and creating artificial demand for things like houses and cars is part of our problem. Our current problems are being caused by the use of credit gone wild. Nevertheless, the government is proposing spending over savings, and by the way, they will borrow the money to do it. On the other hand, when people save they have to invest it somewhere--usually in stocks, bonds, or bank CDs. This helps the economy grow and creates jobs because these savings get invested directly into companies or in the form of loans by banks to companies.

The articles by economist for and against the stimulus package are coming out rapid fire. Here are a few that are very thought provoking.

Is Government Spending Too Easy an Answer?
Government Spending Is No Free Lunch
Let's Stimulate Private Risk Taking

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