Barack Obama had some great advice today. While discussing his plan to reduce foreclosures, he said borrowers and the government need, "'to step back and take responsibility' and said: 'All of us must learn to live within our means again.'"  His words remind me of the saying "do as I say, don't do as I do."   Barack Obama says he wants people to take responsibility for their actions, but they are just empty words. 

     Obama's foreclosure avoidance plan will essentially offer financial incentives to lenders to participate in programs that will possibly reduce foreclosures.  The incentives will be given to banks who will be encouraged to reduce the principle owed, lower rates, etc.  The interesting thing is that many of these loans will be given to home owners whose house is worth less than the amount owed.  Normally, banks would never grant such loans, but of course, the government is offering financial incentives and having taxpayers take on the risks.  So how are these people and lenders taking responsibility?  Basically, we will be paying lenders to originate risky loans.  Isn't this how we got into this situation?

     I think it's smart for banks to offer modified terms to borrowers.  If a bank is going to lose money by foreclosing on a property that has lost much of its value, then it makes sense for the lender to reduce the interest rate, stretch out the term of the mortgage, or make other arrangements.  It's better to lose a little than to lose a lot.  With that said, these decisions should be made by lenders without having financial incentives dangled before them by the Federal Government.  It is the bank's responsibility to take care of their bottom line, and a borrower's responsibility to take care of their home.


http://news.yahoo.com/s/ap/20090218/ap_on_go_pr_wh/obama_home_foreclosures