Buying Votes With Taxpayer Bail Outs

Even the shackles of sequestration haven't stopped the Obama Administration from dreaming up new schemes for government handouts.

In the latest hustle,  those twin mortgage misfits, Fannie Mae and Freddie Mac, have created an insidious subterfuge to reward irresponsible behavior at the expense of taxpayers who bailed out the agencies five years ago.

In a little noticed move, the mortgage giants have announced they will offer lower payments to borrowers who become 90 days or more past due without requiring any proof of hardship.  Fannie and Freddie bragged the plan would reduce monthly mortgage payments 30 percent. Repayment terms would be extended to 40 years under the plan.

With implementation scheduled in July, Democrats also are pushing behind the scenes for even more aggressive loan modifications, including reductions in the principal owed by distressed borrowers. The Congressional Budget Office estimates 1.2 million borrowers would be eligible under the arrangement.

These maneuvers are more about politics than economic reality. 

Housing prices have rebounded in most markets.  Sales are on the upswing.  The share of homeowners behind in their payments is shrinking.  The latest figures reveal that borrower delinquencies have dipped to their lowest level since 2008, according to the Mortgage Bankers Association.

When the need was greatest during 2008, the Obama Administration rolled out flawed programs aimed at struggling homeowners.  The arrangements were roundly criticized by academics and policymakers. The programs, designed to reach 3 million borrowers, only had 900,000 takers.

Past failures have been swept under the rug in the mad rush to dole out government favors before the mid-term elections. 

With the latest gimmick, Fannie and Freddie are eliminating most paperwork used to establish a genuine hardship.  Instead, they will aggressively court borrowers with letters containing the loan modification offer.  Lower payment terms will be offered to borrowers without having to document their finances.

Once a homeowners inks the offer, the reduced remittances automatically become permanent after three payments are made. Like magic, poof, the homeowner gets to pay less money while occupying a home he couldn't afford.  Homeowners who kept up their payments get nothing.

In case you have forgotten, Fannie and Freddie went belly up in 2008. Taxpayers shelled out $137 billion to bail out the firms, which were taken over by the Treasury Department.  Although the government backed companies have begun repaying Treasury, taxpayers are out $127 billion.

A bi-partisan policy group, which includes former Democrat Sen. George Mitchell and ex-Housing and Urban Development Secretary Henry Cisneros, is calling for replacing Freddie and Fannie with a public guarantor to oversee the mortgage market.

One proposal by the group would wind down Fannie and Freddie.  The suggestion is long overdue.  The mortgage behemoths deserve to be scrapped before their risky lending behavior leads to another plea for a taxpayer bailout.