The Tycoon Report

Political Bullying or Just Panic Time? The Hillary Clinton Mortgage Letter!

Over the past few days, news reports have surfaced that Treasury Secretary Henry Paulson and other Treasury officials are trying to negotiate an agreement with some of the larger mortgage companies, in an effort to reduce the ever growing number of foreclosures.

The topics being discussed are how to permit some home owners to refinance their mortgage, or at least to temporarily delay the re-adjustment to higher levels on their adjustable rate mortgage. These allowances would most likely be given to persons who are current on their mortgage payments, but who may be at risk for default when their monthly payments are increased.

I am not hugely supportive of this measure for two reasons. First, because while it has noble intentions, it certainly seems to be unfair to all the people who have already defaulted on and lost their homes in the past two years. Yes, I realize that while it is too late for them, we can still help others who are facing foreclosure down the road. But why should the person whose mortgage was secured in 2006 deserve special treatment, while the one who procured a loan in 2005 is left with loss of home and a serious long term impairment on their credit report?

The second reason that I am not supportive of this measure is because it punishes the note holders by extending the low rates, while rewarding people who may have been irresponsible with their finances. Many recent Tycoon Report articles have hotly debated this subject, so I will not dwell on who is or is not at fault for the subprime mess.

But now we have news that before an agreement can even be worked out, Hillary Clinton has sent a very public letter to Henry Paulson, detailing the provisions of what SHE demands to be done in the negotiations! These provisions are:

1) Impose a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes.

2) Freeze the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loans. After the moratorium, there should be a long freeze in rates on adjustable rate mortgages.

3) Require the mortgage industry to provide status reports on the number of mortgages it has modified. Resolution of the foreclosure crisis will require that large numbers of unworkable mortgages be converted to more stable loans.

But here is the best part of the Clinton letter: "Mr. Secretary, if you produce an agreement that lacks these provisions, I will pursue another course to end the crisis:

I will consider legislation that enables lenders to convert unworkable mortgages into stable, affordable loans without the permission of investors.

I also propose to provide financial assistance to communities on the frontlines of the crisis:

A fund of up to $5 billion to help hard-hit communities and distressed homeowners weather the foreclosure crisis."

It seems to me that this is either pure political bullying of the worst kind, or just panic time from a candidate who is now running behind Barack Obama in the latest polls. Since most people are not even aware of the Paulson meetings, they will simply read a headline that proclaims "Hillary Clinton demands action to stop foreclosures". Obviously, the Clinton campaign hopes to get a much needed political boost from that kind of headline.

But a five year freeze on adjustable mortgages? Is that not excessive? Where can I sign up for one of those? What a deal!

Is there anyone who really believes that Ms. Clinton's motivation is to help the little people? This is pure political grandstanding at its worst. How about we just let Mr. Paulson and the other Treasury Department folks do their jobs to clean up this mess, without unsolicited advice (or threats) from Ms. Clinton, or any of the other politicians who are running for President?

The entire letter can be found on the Hillary Clinton website.

http://www.hillaryclinton.com/news/release/view/?id=4491