Part 2 of the Obama Mortgage Plan

Part 2 of the Obama plan is the section which restructures “at risk” mortgages.  This is the section that which has the moral hazard which everyone is worried about.

I live in the DC area, and recall vividly an article in the Washington Post early last year, when the mortgage problems were just heating up.  The article talked about impact of mortgage resets.  It described the plight of one woman in particular.  She worked as a grocery bagger at the Giant Food in Sterling, Virginia.  Salary: $24K per year.  She had bought a $650,000 house in nearby South Riding.  The mortgage was going to reset, and she couldn’t afford to keep the house.  (Don’t even ask how she got the house to begin with- I guess she was just exploited somehow.)

Now… Obama to the rescue!  Under the Obama plan, the lender first has to lower her mortgage payment down to 38% of her monthly take home income.  With the 30 year fixed rate mortgage hovering today around 5.25%, this means that the lender is expected to shave her mortgage down to around $140,000!  Then the feds will take the payment down further to 31% of her income, which would mean a mortgage balance of $112,000.

Meaning that you and I are on the hook for $28K of debt relief to somebody who is in a house they never should have been able to buy.